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MLCOX A CO

No. 9746

®mteb States; -?%^9

Circuit Court of appeals

Jfor tfje Minti) Circuit*

UNITED STATES OF AMERICA,

Appellant,

vs.

J, LESLIE MORRIS COMPANY, INC., a cor-
poration,

Appellee.

Stamftript nf fterarb

Upon Appeal from the District Court of the

United States for the Southern District

of California, Central Division.

fAULKOW

PARKER PRINTING COMPANY. 545 SANSOME STREET- SAN FRANCISCO 80-8-2S-4I

No. 9746

Wtnittb States

Circuit Court of Appeals

Jfor tfre Jlintf) Circuit.

UNITED STATES OF AMERICA,

Appellant,

vs.

J. LESLIE MORRIS COMPANY, INC., a cor-
poration,

Appellee.

Ulrmrtrript iff Sterorb

Upon Appeal from the District Court of the

United States for the Southern District

of California, Central Division.

PARKER PRINTING COMPANY. S45 SANSOME STREET. SAN FRANCISCO mott i« 41

INDEX

: (Jerk's Note: When deemed likely to be of an important nature.
:rroi> or doubtful matters appearing in the original certified record ar<
printed literal!* in italic: and. likewise, cancelled matter appearing i>-
iiie original certified record is printed and cancelled herein according!?
When possible, an omission from the text is indicated by printing ii>
italic the two words between which the omission seems to occur. j

Page

Answer to Complaint 20

Appeal :

Designation of Appellant of Contents of
Record on (Circuit Court of Appeals) ... 256

Designation of Appellee of Contents of
Record on (Circuit Court of Appeals) ... 259

Designation of Contents of Record on (Dis-
trict Court ) 65

Notice of 62

Order Extending Time to File Record and
Docket Cause on (two) 63-64

Order for Transmittal of Original Exhibits
on 64

Statement of Points on 255

Attorneys, Names and Addresses of 1

Certificate of Clerk 67

Complaint 2

Conclusions of Law 59

Conclusions of the Court 32

ii United States of America vs.

Index Page
Decision 32

Designation of Appellant of Contents of Record
on Appeal (Circuit Court of Appeals) 256

Designation of Appellee of Contents of Record
on Appeal (Circuit Court of Appeals) 259

Designation of Contents of Record on Appeal
(District Court) 65

Findings of Fact and Conclusions of Law 36

Judgment 61

Names and Addresses of Attorneys 1

Notice of Appeal 62

Order Extending Time to File Record and
Docket Cause on Appeal (two) 63-64

Order for Judgment 31

Order for Transmittal of Original Exhibits to
Circuit Court of Appeals 64

Statement of Points on Appeal 255

Substitution of Attorneys 30

Testimony 68

Exhibits for Government:

A — Four invoices (1934) J. Leslie.
Morris Co., Inc 189

B — Articles of Incorporation of J.

Leslie Morris Co., Inc 201

C— Tax Return (1933) Capital Stock

Tax 204

J. Leslie Morris Co., Inc. "i

Index Page

Exhibits for Government (Cont.) :

D— Franchise Tax Return (1932)

California 206

E— Franchise Tax Return (1933)

California 207

F— Franchise Tax Return (1934)

California 208

Exhibits for plaintiff :

1-32 — Photographs of Plaintiff's Proc-
ess with descriptive legend [Set
out in separate volume]

43 — Group of invoices for purchase of

connecting rods 126

45 — Price list, Moroloy (August 1,

1932 ) 129

47 — Price list, Moroloy (September 24,

1934) 134

49— Catalog (1933), Moroloy 136

50 — Photograph of empty carton used

for shipping rods 146

55 — Balance sheet December 31, 1933... 154

61— Letters dated March 25, 1938 and
April 7, 1939 to J. Leslie Morris
& Co., Inc. from Guy T. Helver-
ing 231

62— Capital Stock Tax Return (1934) 235

63— Capital Stock Tax Return (1935) 236

*▼ United States of America vs.

Index Page

Exhibits for plaintiff (Cont.) :

64 — Franchise Stock Tax Return

(1935)' 238

Witnesses for plaintiff:
Morris, J. Leslie

—direct 77

— recalled, direct 161

— cross 162

— redirect 224

— recross 239

— recalled, direct 250

— cross 253

Pattin, Harry W.

— direct 148

— cross 159

NAMES AND ADDRESSES OF ATTORNEYS

For Appellant:

WM. FLEET PALMER, Esq.,

United States Attorney,
E. H. MITCHELL, Esq.,

Assistant United States Attorney,
ARMOND MONROE JEWELL, Esq.,

Assistant United States Attorney,

600 U. S. Post Office & Courthouse Bldg.,

Los Angeles, California.

For Appellee:

DARIUS F. JOHNSON, Esq.,

1124 Van Nuys Building,

Los Angeles, California.
MESSRS. MESERVE, MUMPER AND

HUGHES,
SHIRLEY E. MESERVE, Esq.,
E. A. CRARY, Esq.,

555 South Flower St., Suite 615,

Los Angeles, California, [1*]

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

2 United States of America vs.

In the District Court of the United States

In and for the Southern District of California

Central Division

No. 433-J Civil

J. LESLIE MORRIS COMPANY, INC.,

Plaintiff,

vs.

UNITED STATES OF AMERICA,

Defendant.

COMPLAINT

FOR RECOVERY OF INTERNAL REVENUE

TAX AND INTEREST

Comes now the plaintiff in the above entitled
action and for cause of action against the defend-
ant, complains and alleges:

I.

That the plaintiff, J. Leslie Morris Company,
Inc., at all times herein mentioned was, and now is,
a corporation duly organized and existing under
and by virtue of the laws of the State of California,
with its principal place of business located in the
City of Los Angeles, County of Los Angeles, State
of California. Said principal place of business is
located within the Sixth Collection District of Cali-
fornia.

II.

That one Nat Rogan was on, to-wit : July 30, 1935,
and prior thereto, and thence continuously up to

J. Leslie Morris Co., Inc. 3

and including the date of the filing of this com-
plaint, collector of Internal Revenue of the United
States for the Sixth District of California.

III.

That the tax and interest involved herein arises
under the laws of the United States providing for
internal revenue and more specifically under Sec-
tion 606 (c) of the Internal Revenue Act of 1932.
That all of the taxes and interest sued for herein
were assessed and imposed in respect of sales by
plaintiff of [2] rebabbitted automobile connecting
rods during the period from June 21, 1922, to
August 1, 1935. All of said connecting rods were
originally manufactured by persons, firms or cor-
porations other than plaintiff, and before their
acquisition by plaintiff, had been used as operating
parts for automobile motors, and by reason of such
use the babbitt metal lining constituting a part of
said connecting rods had become worn, chipped,
roughened and otherwise impaired.

IV.

That none of the articles sold by this plaintiff, on
which the tax sued for herein was assessed and
paid, were manufactured or produced or imported
by said plaintiff; that plaintiff is, and at all times
herein mentioned was, engaged in the business of
repairing and rebabbitting worn and damaged auto-
mobile connecting rods; that the process used was
only a repair and did not change the identity of

4 United States of America vs.

the parts in any manner, as trade-names and model
numbers appearing thereon were not altered or re-
moved; that all repaired connecting rods were
packed in cartons clearly marked to indicate that
the parts had only been rebabbitted and repaired.

V.

That on or about the 15th day of November, 1935,
the defendant, acting by and through the Bureau
of Internal Revenue of the Treasury Department,
and the Collector of Internal Revenue for the Sixth
District of California, determined that there were
due from plaintiff, pursuant to the provisions of
Section 606(c) of the Internal Revenue Act of
1932, certain excise taxes together with interest
thereon, upon the sale by plaintiff or rebabbitted
automobile connecting rods, in the sum of $6,800.59 ;
and pursuant to such determination the defendant
assessed said taxes and interest, or caused the same
to be assessed against the plaintiff, and the Collector
of Internal Revenue for the Sixth District of [3]
California made demand upon plaintiff for the pay-
ment of said taxes and interest.

VI.

That pursuant to the aforesaid demand the plain-
tiff paid to the Collector of Internal Revenue of
the United States for the Sixth District of Cali-
fornia, the sum of $500.00, on or about the 1st day
of September, 1937.

J. Leslie Morris Co., Inc. 5

VII.

That Section 608(c) of the Internal Revenue Act
of 1932, does not levy a tax on the sale of rebab-
bitted and repaired automobile connecting rods, and
therefore, the assessment heretofore alleged is il-
legal and void. Accordingly, on or about the 18th
day of November, 1937, in accordance with the
provisions of the Internal Revenue Act of 1932, the
plaintiff duly filed with the Collector of Internal
Revenue of the United States for the Sixth District
of California, at his office in the City of Los An-
geles, State of California, a claim for refund of said
$500.00, representing tax and interest paid under
provisions of Section 606(c) of the Internal Rev-
enue Act of 1932; that said claim for refund was
duly filed on Official Form Number 843; that in
said claim for refund plaintiff alleged and set forth
as the grounds for the refund claimed, as follows,
to wit :

" Commissioner of Internal Revenue,

Washington, D. C.

Sir:

Re: J. Leslie Morris Co., Inc.
1361 S. Hope Street,
Los Angeles, Calif.
Under account number Nov. 36 Misc 2027-1
your office assessed $6800.59 against the above
taxpayer to cover the manufacturer's excise tax
on the sale of rebabbitted automobile connect-
ing rods during the period from June 21, 1932,

United States of America vs.

to August 1, 1935. On September 1, 1937, this
taxpayer made a payment of $500.00 on said
assessment.

The above payment of $500.00 represents a
payment by this taxpayer on the liability as
established by the [4] commissioner's office.
This tax has not been passed on to the pur-
chaser in any manner, either by separate bill-
ing or by a raise in prices.

The J. Leslie Morris Co., Inc., is engaged in
the business of rebabbitting worn automobile
connecting rods. The process is only a repair
and does not alter the identity of the rod as
established by the manufacturer. The finished
article is clearly marked to show that the repair
work was done by this taxpayer. The finished
article is packed in a carton marked ' re-bab-
bitted' and bearing the statement 'Our famous
spinning process used in repairing this connect-
ing rod'. This company is well known to the
automobile trade as a rebabbitter of rods. They
have never manufactured a new rod, and could
not do so if they wished for the reason that
they have not the equipment which would be
necessary to make a new rod.

It is contended that since the rebabbitted
connecting rods do not lose their original iden-
tities and since the rebabbitting is only a repair
process, that no tax should attach upon the sale
thereof. This contention is based on the rulings
pertaining to the rebuilding of storage bat-

/. Leslie Morris Co., Inc. 7

teries, automobile engines and upon the follow-
ing rulings and decisions:

S. T. 458 C. B. June 1925, p. 253. This ruling
held that where the manufacturer of automo-
bile truck chassis, in the sale of his product,
took in part payment trucks of his own make,
some of which were repaired by replacing un-
serviceable parts by new parts, that no tax
would attach to the sale thereof under section
600 (3) of the Internal Revenue Act of 1924,
but that a tax was due on the sale of the new
parts used in the repairing of the old trucks.
Some used chassis were dismantled and usable
parts were used in the manufacture of truck
chassis, together with other salvaged parts and
new parts, producing a [5] chassis which had
no previous existence. Only in the latter in-
stance would tax attach to the sale.

This policy was continued with reference to
used motorcycles by a ruling published in 1932.
(S. T. 514, C. B. December 1932, p. 471) :

' "Where manufacturer A accepts as a
trade-in a used motorcycle made by manufac-
turer B, the resale by manufacturer A is
not taxable because it is not a sale by the
manufacturer, producer or importer. How-
ever, in the event that used motorcycles are
so materially changed before being resold as
to lose their original identity, the resale of
such machine is subject to the tax imposed by

8 United States of America vs.

section 606 (b) of the Internal Revenue Act
of 1932." '

"In a case relating to retreading of automo-
bile tires, published in 1933, the Bureau of In-
ternal Revenue once more applied the same
rule.
(S. T. 648, C. B. June 1933, p. 384) :

' "The retreading of old tires by resurfac-
ing or replacing of the actual tread down to
the tread line, without altering the side walls
or destroying the original identity of the tire,
does not constitute the manufacture of a tax-
able article/' '

"This rule was extended by J. C. Skinner
vs. United States to exclude all retreaded tires
from this tax. In this case the court said that
retreaded tires were known to the automobile
trade for many years prior to the enactment
of the Internal Revenue Act of 1932 and that
if Congress had intended that the tax should
attach to the sale of retreaded tires that such
provision would have been put in the act, and
that since such provision was not put in the
act it appears that Congress intended for the
tax to attach only to the sale of new tires.

"This rule was continued by the Federal
Court in Montieth Brothers Company vs.
United States rendered October 5, 1936 and in
Hempy-Cooper Manufacturing Company vs.
United States. Both these cases related to the
taxability of rebabbitted connecting rods and

J. Leslie Morris Co., Inc. 9

rewound armatures. The court found in favor
of the plaintiff in both of these cases, and
adopted findings which left no doubt as to sale
of rebabbitted connecting rods being free of
tax. [6]

" Attention is called to a letter to the Na-
tional Standard Parts Association, Detroit,
Mich, over the signature of Mr. D. S. Bliss
dated June 30, 1936, in which it was held that
no tax attached to the sale or exchange of re-
built automobile engines, even though many
new parts wTere used. Apparently it was pre-
sumed that all the parts had been purchased
tax paid. In this letter Mr. Bliss mentioned that
' repaired connecting rods' were used in the
rebuilt engine under consideration.

"In view of the foregoing rulings and court
decisions it is impossible to reconcile the action
of the Bureau of Internal Revenue in holding
that the sale of rebabbitted connecting rods is
subject to tax. The intent of the above author-
ities is very clear and leaves no doubt as to the
law applicable in the instant case. Accordingly,
taxpayer claims that the tax referred to here-
tofore was unjustly and illegally collected and
should be refunded.

"J. LESLIE MORRIS COM-^
PANY, INC.,
By J. LESLIE MORRIS,

President"

10 "United States of America vs.

VIII.

That on or about the 25th day of March, 1938,
the Commissioner of Internal Revenue of the
United States rejected and disallowed plaintiff's
said claim for refund of $500.00.

IX.

That the tax and interest covered by this suit
has not been included in the price of the article
with respect to which it was imposed, or collected
from the vendee or vendees. [7]

For a Second, Several and Separate Cause of Ac-
tion, Plaintiff Complains of Defendant and Al-
leges :

I.
Plaintiff, by reference, hereby makes Paragraphs
I, II, III, IV, V, and IX of its first cause of action
a part of this cause of action, as if the same were
fully set forth herein.

II.

That pursuant to the aforesaid demand the plain-
tiff paid to the Collector of Internal Revenue of the
United States for the Sixth District of California,
the sum of $500.00, on or about the 22nd day of
April, 1938.

III.

That Section 606 (c) of the Internal Revenue Act
of 1932, does not levy a tax on the sale of rebab-
bitted and repaired automobile connecting rods, and
therefore, the assessment heretofore alleged is ille-
gal and void.

J. Leslie Morris Co., Inc. 11

Accordingly, on or about the 7th day of June,
1938, in accordance with the provisions of the In-
ternal Revenue Act of 1932, the plaintiff duly filed
with the Collector of Internal Revenue of the
United States for the Sixth District of California,
at his office in the City of Los Angeles, State of
California, a claim for refund of said $500.00 repre-
senting tax and interest paid under provisions of
Section 606 (c) of the Internal Revenue Act of
1932; that said claim for refund was duly filed on
Official Form number 843; that in said claim for
refund plaintiff alleged and set forth as the grounds
for the refund claimed, as follows, to wit :

" Commissioner of Internal Revenue

Washington, D. C.

Sir:

Re : J. Leslie Morris Co., Inc.

1361 S. Hope Street,

Los Angeles, Calif.

" Under account number Nov. 36 Misc. 2027-1
your office assessed $6800.59 against the above
taxpayer to [8] cover the manufacturer's excise
tax on the sale of rebabbitted automobile con-
necting rods during the period from June 21,
1932, to August 1, 1935. On April 21, 1938, this
taxpayer made a payment of $500.00 on said
assessment.

"The above payment of $500.00 represents a
payment by this taxpayer on the liability as
established by the commissioner's office. This
tax has not been passed on to the purchaser in

12 United States of America vs.

any manner, either by separate billing or by a
raise in prices.

"The J. Leslie Morris Co., Inc., is engaged
in the business of rebabbitting worn automo-
bile connecting rods. The process is only a re-
pair and does not alter the identity of the rod
as established by the manufacturer. The fin-
ished article is clearly marked to show that
the repair work was done by this taxpayer.
The finished article is packed in carton
marked "re-babbitted" and bearing the state-
ment "Our famous spinning process used in
repairing this connecting rod." This company
is well known to the automobile trade as a re-
babbitter of rods. They have never manufac-
tured a new rod, and could not do so if they
wished for the reason that they have not the
equipment which would be necessary to make
a new rod.

"It is contended that since the rebabbittecl
connecting rods do not lose their original iden-
tities and since the rebabbitting is only a re-
pair process, that no tax should attach upon
the sale thereof. This contention is based on
the rulings pertaining to the rebuilding of stor-
age batteries, automobile engines and upon the
following rulings and decisions :

"S. T. 458 C. B. June 1925, p. 253. This rul-
ing held that where the manufacturer of auto-
mobile truck chassis, [9] in the sale of his prod-

J. Leslie Morris Co., Inc. 13

uct, took in part payment trucks of his own
make, some of which were repaired by replac-
ing unserviceable parts by new parts, that no
tax would attach to the sale thereof under sec-
tion 600 (3) of the Internal Revenue Act of
1924, but that a tax was due on the sale of the
new parts used in the repairing of the old
trucks. Some used chassis were dismantled and
usable parts were used in the manufacture of
truck chassis, together with other salvaged
parts and new parts, producing a chassis which
had no previous existence. Only in the latter
instance would tax attach to the sale.

"This policy was continued with reference to
used motorcycles by a ruling published in 1932.

(S. T. 514, C.B. December 1932, p. 471) :

" ' Where manufacturer A accepts as a
trade-in a used motorcycle made by manufac-
turer B, the resale by manufacturer A is not
taxable because it is not a sale by the man-
ufacturer, producer or importer. However,
in the event that used motorcycles are so ma-
terially changed before being resold as to
lose their original identity, the resale of such
machine is subject to the tax imposed by sec-
tion 606 (b) of the Internal Revenue Act of
1932/ "

"In a case relating to retreading of automo-
bile tires, published in 1933, the Bureau of In-
ternal Revenue once more applied the same rule.

14 United States of America vs.

(S. T. 648, C. B. June 1933, p. 384) :

" 'The retreading of old tires by resurfac-
ing or replacing of the actual tread down to
the tread line, without altering the side walls
or destroying the original identity of the tire,
does not constitute the manufacture of a tax-
able article.' "

"This rule was extended by J. C. Skinner vs.
United States to exclude all retreaded tires from
this tax. In this case the court said that re-
treaded tires were known to the automobile
trade for many years prior to the enactment of
the Internal Revenue Act of 1932 and that if
Congress had intended that the tax should at-
tach to the sale of retreaded tires that such pro-
vision would have been put in the act, [10] and
that since such provision was not put in the act
it appears that Congress intended for the tax
to attach only to the sale of new tires.

"This rule was continued by the Federal
Court in Montieth Brothers Company vs.
United States rendered October 5, 1936 and in
Hempy-Cooper Manufacturing Company vs.
United States. Both these cases related to the
taxability of rebabbitted connecting rods and
rewound armatures. The court found in favor
of the plaintiff in both of these cases, and adopt-
ed findings which left no doubt as to sale of
rebabbitted connecting rods being free of tax.

"Attention is called to a letter to the Na-
tional Standard Parts Association, Detroit,
Mich, over the signature of Mr. D. S. Bliss in

J. Leslie Morris Co., Inc. 15

which it was held that no tax attached to the
sale or exchange of rebuilt automobile engines,
even though many new parts were used. Appar-
ently it was presumed that all the parts had
been purchased tax paid. In this letter Mr. Bliss
mentioned that " repaired connecting rods"
were used in the rebuilt engine under consider-
ation.

"In view of the foregoing rulings and court
decisions it is impossible to reconcile the ac-
tion of the Bureau of Internal Revenue in
holding that the sale of rebabbitted connect-
ing rods is subject to tax. The intent of the
above authorities is very clear and leaves no
doubt as to the law applicable in the instant
case. Accordingly, taxpayer claims that the tax
referred to heretofore was unjustly and ille-
gally collected and should be refunded.
"J. LESLIE MORRIS
COMPANY, INC.,
"By J. LESLIE MORRIS,

"President." [11]

IV.

That on or about the 7th day of April, 1939, the
Commissioner of Internal Revenue of the United
States rejected and disallowed plaintiff's said claim
for refund of $500.00.

16 United States of America vs.

For a Third, Several and Separate Cause of Ac-
tion, Plaintiff Complains of Defendant and Al-
leges :

I.
Plaintiff, by reference, hereby makes Paragraphs
I, II, III, IV, V, and IX of its first cause of ac-
tion a part of this cause of action, as if the same
were fully set forth herein.

II.

That pursuant to the aforesaid demand the plain-
tiff paid to the Collector of Internal Revenue of
the United States for the Sixth District of Cali-
fornia, the sum of $500.00, on or about the 13th
day of August, 1938.

III.

That Section 606 (c) of the Internal Revenue Act
of 1932, does not levy a tax on the sale of rebab-
bitted and repaired automobile connecting rods, and
therefore, the assessment heretofore alleged is ille-
gal and void. Accordingly, on or about the 20th
day of August, 1938, in accordance with the provi-
sions of the Internal Revenue Act of 1932, the plain-
tiff duly filed with the Collector of Internal Reve-
nue of the United States for the Sixth District of
California, at his office in the City of Los Angeles,
State of California, a claim for refund of said
$500.00, representing tax and interest paid under
provisions of Section 606 (c) of the Internal Reve-
nue Act of 1932; that said claim was duly filed on
refund plaintiff alleged and set forth as the grounds
Official form number 843; that in said claim for
for the refund claimed, as follows, to wit: [12]

J. Leslie Morris Co., Inc. 17

"Commissioner of Internal Revenue
Washington, D. C.

Re: J. Leslie Morris Co., Inc.
1361 S. Hope Street,
Los Angeles, California
Sir:

"Under account number Nov. 26 Misc. 2027-1
your office assessed $6,800.59 against the above
taxpayer to cover the manufacturer's excise tax
on the sale of rebabbitted automobile connect-
ing rods sold during the period from June 21,
1932 to August 1, 1935. On August 9, 1938, this
taxpayer made a payment of $500.00 on said as-
sessment.

"The J. Leslie Morris Company is engaged in
the business of rebabbitting worn automobile
connecting rods. The process is only a repair
and does not alter the identity of the rod as
established by the manufacturer. The finished
article is clearly marked to show that the repair
work was done by this taxpayer and is packed
in a carton marked " Re-babbitted ' ' and bearing
the statement "Our Famous spinning process
used in repairing this connecting rod." This
company is well known to the automobile trade
as a re-babbitter of connecting rods. They have
never manufactured a new rod, and could not
do so for the reason that they have not the
necessary equipment.

"It is contended that since the re-babbitted
connecting rods do not lose their original iden-
tity and since the re-babbitting is only a repair,

18 United States of America vs.

that no tax should attach upon the sale there-
of. Our contention is based on the actual facts
and the following Treasury decisions and Court
Decisions :

"S. T. 458 C. B. June 1925, p. 253. This rul-
ing held that where the manufacturer of auto-
mobile truck chassis, repaired used trucks by
replacing worn parts with new parts, that no
tax attached to the sale thereof under [13] sec-
tion 606 (3) of the Internal Revenue Act of
1924, but that a tax would attach to the sale of
the new parts used therein.

"This policy was continued with reference to
the sale of used motorcycles by a ruling pub-
lished in 1932. S. T. 514, C. B. December 1932,
P. 471. In this instance the Bureau held:
" ' Where manufacturer A accepts as a
trade-in a used motorcycle made by manufac-
turer B, the resale by manufacturer A is not
a sale by the manufacturer, producer or im-
porter. However, in the event that used mo-
torcycles are so materially changed before be-
ing resold as to lose their original identity,
the resale of such machine is subject to the
tax imposed by section 606 (b) of the Inter-
nal Revenue Act of 1932.' "

"In a case relating to retreading of automo-
bile tires, published in 1933, the Bureau of In-
ternal Revenue once more applied the same
rule, S. T. 648, C. B. June, 1933, p. 384.

" 'The retreading of old tires by resurfac-
ing or replacing of the actual tread down to

J. Leslie Morris Co., Inc. 19

the tread line, without altering the side walls
or destroying the original identity of the tire,
does not constitute the manufacture of a tax-
able article.' "

"The above rule was followed by the United
States District Court in J. C. Skinner v. United
States, 8 Federal Supplement 999. In this case
the Court said that retreaded tires were known
to the automobile trade for many years prior to
the enactment of the Internal Revenue Act of
1932 and that if Congress had intended that the
tax should attach to the sale of retreaded tires,
that such provision would have been put in the
act, and that since such provision was not put
in the act it appears that Congress intended
for the tax to attach only to the sale of new
tires.

"This rule was continued by the Federal Dis-
trict Court in Monteith Brothers Company v.
United States, Mempy-Cooper Manufacturing
Company v. United States and Pioneer Motor
Bearing Company v. United States. [14]

"In view of the foregoing decisions and the
fact that the rebabbitting process does not alter
the original identity of the connecting rods, it
is claimed that no tax is due upon the sale
thereof, and that the $500.00 payment referred
to above was unjustly and illegally collected and
should be refunded.

"J. LESLIE MORRIS
COMPANY, INC.
By J. LESLIE MORRIS,

"President."

20 United States of America vs.

IV.

That on or about the 7th day of April, 1939, the
Commissioner of Internal Revenue of the United
States rejected and disallowed plaintiff's said claim
for refund of $500.00.

Wherefore, plaintiff prays for judgment against
defendant in the sum of $1,500.00, together with
interest thereon, from the dates of the respective
payments, at the rate of six per cent per annum,
and for such other and further relief as the court
deems fitting and proper.

DARIUS F. JOHNSON,
Attorney for Plaintiff. 1124 Van Nuys Building,
Los Angeles, California. [15]

(Verification.)

[Endorsed]: Filed Jun 15, 1939. R. S. Zimmer-
man, Clerk. By L. B. Figg, Deputy Clerk. [16]

[Title of District Court and Cause.]

ANSWER

Comes now the defendant in the above entitled
action and in answer to the Complaint, admits, de-
nies and alleges as follows :

I.

The allegations of Paragraph I of the Complaint
are admitted.

II.

The allegations of Paragraph II of the Complaint
are admitted.

J. Leslie Morris Co., Inc. 21

III.

Answering the allegations of Paragraph III of
the Complaint, defendant admits that the tax in
controversy arises under Section 606 (c) of the
Revenue Act of 1932 and that said taxes were as-
sessed and imposed in respect of automobile con-
necting rods sold by plaintiff during the period
between June 21, 1932, and July 31, 1935, inclu-
sive, but it is denied that said sales were of " re-
babbitted automobile connecting rods77. It is denied
that all or any part of said connecting rods sold by
plaintiff were manufactured by any person or [17]
persons other than plaintiff. In this connection, it
is alleged that the connecting rods sold by plain-
tiff, or the greater part of them, were connecting
rods manufactured and produced by it, within the
meaning of the Revenue Statute, from a combina-
tion of new materials and usable materials sal-
vaged from discarded, used or worn out connect-
ing rods, or scrap acquired by plaintiff from job-
bers and junk dealers; that such used connecting
rods as were salvaged and used by the plaintiff
in the manufacture of connecting rods sold by it
were discarded and junked by their former owners
because they were no longer regarded by such own-
ers as serviceable or fit for the purpose to which
they were originally put and adapted, and that the
remainder of plaintiff's sales of connecting rods con-
sisted of newly manufactured rods purchased by
plaintiff from outside sources in instances where
used f orgings were not yet available, due to the re-

22 United States of America vs.

cent advent of particular types or models of rods,
and that said newly manufactured rods were sold
by plaintiff as its own product and were commin-
gled with the connecting rods produced and manu-
factured by plaintiff from a combination of new
and used materials. All other allegations of Para-
graph III are denied.

IV.

Answering Paragraph IV of the Complaint, it is
admitted that none of the articles sold by plaintiff
were imported by it. All other allegations of said
Paragraph IV of Complaint are denied. It is fur-
ther alleged in this connection that plaintiff at all
times material to the issues in this action was en-
gaged chiefly in the business of making and produc-
ing automobile connecting rods and selling them
under its own trade name therefor throughout the
United States, Canada, New Zealand and Australia
to wholesalers, known also as jobbers, for replace-
ment purposes in connection with the repairing of
automobile motors by mechanics and garage men.

[18]
V.

Answering Paragraph V of the Complaint, de-
fendant admits that the Commissioner of Internal
Revenue determined that taxes in the aggregate sum
of $5,243.49 were due by plaintiff under the provi-
sions of Section 606 of the Revenue Act of 1932, in
addition to the original taxes paid by plaintiff in the
amounts shown in the monthly excise returns filed
by plaintiff with respect to the cash portion of each
and every sale of automobile connecting rods made

J. Leslie Morris Co., Inc. 23

by it during the taxable period. In this connection,
it is alleged that said sum of $5,243.49, together
with interest thereon of $1,164.42 and penalties of
$392,68, or an aggregate sum of $6,800.59, was duly
assessed on the November, 1935 assessment list of
the Commissioner of Internal Revenue and that de-
mand for payment of said tax was duly made. That
said additional assessment of $5,243.49 was made on
the basis that the allowance granted by plaintiff for
the serviceable article taken in trade on its sales
should be included as part of the sales price in com-
puting the tax. All other allegations of Paragraph V
of the Complaint are denied.

VI.

The allegations of Paragraph VI are admitted.
In further answer to the allegations of Paragraph
VI, defendant alleges that plaintiff has paid on
said assessment of $6,800.59 only the sum of $1,500.00
and is still indebted to the United States in the re-
maining amount of $5,300.59, plus interest.

VII.

Answering the allegations of Paragraph VII of
the Complaint, defendant denies the assessment in
question is illegal or void. It is admitted that plain-
tiff filed a claim for the refund of the sum of $500.00
paid on September 1, 1937, on account of the total
addi- [19] tional assessment of $6,800.59 and that
said claim was filed on Treasury Department Form
843 and recited in support thereof the grounds which
are quoted in Paragraph VII of the Complaint. It

24 United States of America vs.

is denied that said grounds correctly set forth the
facts or are legally sufficient to constitute a claim
for refund. It is alleged that the remaining allega-
tions of Paragraph VII are argumentative and re-
quire no answer. In further answer to Paragraph
VII of the Complaint, it is alleged that plaintiff's
purported claim for refund is legally insufficient as
a basis for the recovery of said sum of $500.00 be-
cause said claim for refund was filed prior to the
payment of the entire assessment of $6,800.59 and
that the Court is without jurisdiction to grant re-
covery herein for the reason that plaintiff has failed
to comply in said claim, or otherwise, with the pro-
visions of Section 621 (d) of the Revenue Act of
1932 and the Regulations promulgated pursuant
thereto.

VIII.
Paragraph VIII of the Complaint is admitted.

IX.

Paragraph IX of the Complaint is denied.

In answer to the plaintiff's alleged second and
separate cause of action, defendant admits, denies
and alleges as follows :

I.

Answering Paragraph I of said alleged second
cause of action, defendant, by reference, hereby
adopts the answers made to Paragraphs I, II, III,
IV, V and IX of plaintiff's alleged first cause of
action with the same force and effect as if said an-
swering paragraphs were again fully set forth. [20]

«7. Leslie Morris Co., Inc. 25

II.

Paragraph II of the alleged second cause of ac-
tion is admitted. Further answering Paragraph II
of the second cause of action, defendant alleges that
plaintiff has paid on said assessment of $6,800.59
only the total sum of $1,500.00 and is still indebted
to the United States in the remaining amount of
$5,300.59, plus interest.

III.

Answering the allegations of Paragraph III of
the alleged second cause of action, defendant de-
nies that the assessment in question is illegal or
void. It is admitted that plaintiff filed a claim for
refund of the sum of $500.00 paid on April 22, 1938,
on account of the total additional assessment of $6,-
800.59. That said claim was filed on Treasury De-
partment Form 843 and recited in its support the
grounds which are quoted in Paragraph III of said
alleged second cause of action of the Company, but
it is denied that said grounds correctly set forth
the facts or are legally sufficient. It is alleged that
the remaining allegations of said Paragraph III of
the alleged second cause of action of the Complaint
are argumentative and require no answer. In fur-
ther answer to the allegations of Paragraph III of
the alleged second cause of action, defendant al-
leges that plaintiff's said claim for refund is le-
gally insufficient as a basis for the recovery of said
$500.00 because the same was filed prior to the pay-
ment of the entire assessment of $6,800.59 and that
the Court is without jurisdiction to grant any re-

26 United States of America vs.

covery herein because plaintiff has failed to com-
ply in said claim, or otherwise, with the provisions
of Section 621(d) of the Revenue Act of 1932 and
the Regulations promulgated pursuant thereto.

[21]
IV.

The allegations of Paragraph IV of the alleged
second cause of action of the Complaint are admit-
ted.

In answer to plaintiff's alleged third and separate
cause of action, defendant admits, denies and al-
leges as follows:

I.

In answer to Paragraph I of plaintiff's alleged
third cause of action, the defendant, by reference,
here adopts the answer made to Paragraphs I, II,
III, IV, V and IX of the plaintiff's first alleged
cause of action with the same force and effect as if
said answering paragraphs were again fully set
forth.

II.

The allegations of Paragraph II of plaintiff's
alleged third cause of action are admitted. In fur-
ther answer to said Paragraph II of plaintiff's al-
leged third cause of action, defendant alleges that
the plaintiff paid on said assessment of $6,800.59
only the total sum of $1,500.00 and is still indebted
to the United States in the remaining amount of
$5,300.59, plus interest.

III.

Answering the allegations of Paragraph III of
plaintiff's alleged third cause of action, defendant

/. Leslie Morris Co., Inc. 27

denies that the assessment in question is illegal or
void. It is admitted that plaintiff filed a claim for
the refund of $500.00 paid August 13, 1938, on ac-
count of the total assessment of $6,800.59 ; that said
claim was filed on Treasury Department Form 843
and recited in support thereof the grounds which
are quoted in Paragraph III of said alleged third

[22]
cause of action of plaintiff's Complaint. It is alleged
that the remaining allegations of Paragraph III
are argumentative and require no answer. In fur-
ther answer to the allegations of said Paragraph
III, defendant alleges that plaintiff's purported
claim for refund is legally insufficient as a basis
for the recovery of said $500.00 because the same
was filed prior to the payment of the entire assess-
ment of $6,800.59. Further answering, the defend-
ant alleges that the said claim for refund is also
insufficient because of the failure to allege therein
that plaintiff has not included the tax in the price
of the articles with respect to which it was imposed,
or that plaintiff has not collected the amount of the
tax from the vendees, or that it has repaid the amount
of the tax to the ultimate purchasers of the arti-
cles, or has secured the written consent of such ulti-
mate purchasers to the allowance of the credit or
refund as required by Section 621(d) of the Reve-
nue Act of 1932 and Article 71 of Treasury Regu-
lations 46. It is alleged that plaintiff has wholly
failed to comply with the requirements of said
Article 71 of Treasury Regulations 46 and Section
621(d) of the Revenue Act of 1932 in its claim for

28 United States of America vs.

refund, or otherwise, and for that reason the Court
is without jurisdiction to grant plaintiff any recov-
ery herein and plaintiff's alleged third cause of ac-
tion should be dismissed.

IV.

The allegations of Paragraph IV of the alleged
third cause of action are admitted.

By way of further answer to plaintiff's Com-
plaint and as a counter-claim, defendant alleges as
follows: [23]

I.

That the defendant is a corporate body politic.

II.

That the United States Commissioner of Internal
Revenue on his November, 1935 Miscellaneous tax
assessment list, page 2027, line 1, determined and
assessed an additional tax and interest in the ag-
gregate amount of $6,800.59 against the plaintiff
on account and in respect of sales made by plain-
tiff of automobile connecting rods during the period
from June 21, 1932, to and including July 31, 1935.

III.

That on September 1, 1937, plaintiff paid the sum
of $500.00 on account of the said additional assess-
ment. Thereafter plaintiff paid the sum of $500.00
on April 22, 1938, and $500.00 on August 13, 1938,
and there remains due and unpaid to the defendant
from the plaintiff on account of said additional
assessment the sum of $5,300.59, together with in-
terest as provided by law.

J. Leslie Morris Co., Inc. 29

IV.

That although the Collector of Internal Revenue
for the Sixth Collection District of California has,
on behalf of the defendant herein, demanded that
plaintiff pay the entire amount of said additional
assessment, plaintiff has failed, neglected and re-
fused to pay the sum of $5,300.59, plus interest
thereon, and is indebted to the defendant in said
amount, for which defendant here asserts a coun-
ter-claim without, however, waiving the defendant's
right to rely upon any of the defenses above set
forth in this Answer. [24]

Wherefore, the defendant, having fully answered
the plaintiff's Complaint, prays judgment as fol-
lows:

I.

That the plaintiff take nothing by this action.

II.

That the defendant have Judgment against the
plaintiff herein in the amount of $5,300.59, plus in-
terest according to law, together with defendant's
costs expended.

BEN HARRISON, E. H.

United States Attorney.
E. H. MITCHELL, E. H.

Assistant U. S. Attorney.
EUGENE HARPOLE,
Special Attorney, Bureau of Internal Revenue, At-
torneys for Defendant.

[Endorsed]: Filed Oct. 16, 1939. R. S. Zimmer-
man, Clerk. By L. B. Figg, Deputy Clerk.

[25]

30 United States of America vs.

[Title of District Court and Cause.]

SUBSTITUTION OP ATTORNEYS

I, hereby substitute Darius F. Johnson and Me-
serve, Mumper and Hughes, as my attorneys in the
above entitled matter, in the place and stead of
Darius F. Johnson.

Dated : This 23 day of April, 1940.

J. LESLIE MORRIS
COMPANY, INC.
By J. LESLIE MORRIS,

President.
I, hereby agree to the substitution of Darius F.
Johnson and Meserve, Mumper and Hughes, as the
attorneys for the plaintiff, J. Leslie Morris Com-
pany, Inc., in the above entitled matter, in my place
and stead.

Dated : This 23 day of April, 1940.

DARIUS F. JOHNSON.

[27]

We hereby accept the above substitution of Dar-
ius F. Johnson, and Meserve, Mumper and Hughes,
as attorneys for the plaintiff, J. Leslie Morris Com-
pany, Inc., in the above entitled matter, in the place
and stead of Darius F. Johnson.

Dated : This 30th day of April, 1940.

MESERVE, MUMPER and
HUGHES,
By SHIRLEY E. MESERVE.

J. Leslie Morris Co., Inc. 31

Received copy of the within Substitution of Attys
this 6 day of May, 1940.

BEN HARRISON,

U. S. Attorney.
By ARMOND MONROE JEWELL,
Asst. U. S. Atty. Attorney for Deft.

[Endorsed]: Filed May 6, 1940. R. S. Zimmer-
man, Clerk. By C. E. Hollister, Deputy Clerk. [28]

At a stated term, to wit: The February Term
A. D. 1940 of the District Court of the United
States of America, within and for the Central Di-
vision of the Southern District of California, held
at the Court Room thereof, in the City of Los An-
geles on Wednesday the 24th day of July in the
year of our Lord one thousand nine hundred and
forty.

Present: The Honorable: Paul J. McCormick,
District Judge.

No. 433-M Civil

J. LESLIE MORRIS COMPANY, INC.

Plaintiff,

vs.

UNITED STATES OF AMERICA,

Defendant.

This cause having come before the Court for
trial without a jury on May 28, 1940, and on May

32 United States of America vs.

29, 1940, and having been ordered submitted for a
decision, and the Court having duly considered the
matter, now files its " Conclusions of the Court"
and orders as follows :

Upon all the evidence and stipulation in the rec-
ord, Findings of Fact, Conclusions of Law, and
Judgment are ordered for the plaintiff as demanded
by the Complaint under the issues of Complaint
and Answer, and against the defendant under the
issues of the Counterclaim. Attorneys for the plain-
tiff will prepare, serve, and present the same under
the rules within five days from notice hereof. Ex-
ceptions allowed defendant. See written Conclusions
of the Court filed herein this day. [32]

[Title of District Court and Cause.]

CONCLUSIONS OF THE COURT

McCormick, District Judge:

When consideration is given to the irreconcilable
conflict of federal court decisions upon the crucial
factual issue in this action, i. e., whether taxpayer
in rebabbitfng used and damaged connection rods of
automobiles is a manufacturer or producer of such
parts or accessories, it is indisputable that there is
more than doubt as to the meaning of the terms
"manufacturer" or "producer" in Section 606 of
Revenue Act 1932 and subsection (c) thereof. 47
Stat, at Large, Part 1, pp. 261-262, Title 33 U. S.
C. A., Sec. 606.

J. Leslie Morris Co., Inc. 33

Under such a record doubts arising under the
taxing statute should be resolved against the taxing
agency and favorable to the taxpayer. Miller v. Nut
Margarine Co., 284 U. S. 498, at page 508; Erskine
v. United States, 9 Circuit, 1936, 84 F. 2d 691.

It is only by straining the terms " manufacturer"
and " producer" contained in the taxing statute
under consideration from their usual, ordinary and
normally understood meanings into all-inclusive sit-
uations that these terms of doubtful signification
can be extended to a service station or processor
such as plaintiff taxpayer, whose transactions under
consideration in this cause are actually no more
than repairing damaged used connecting rods of
automobiles and charging for the repair job [33]
and service upon delivery of the customer's re-
paired rod or of another rebabbited second-hand
repaired rod. We think no such forced and omnibus
meaning of the terms " manufacturer" or " pro-
ducer" can be fairly attributed to Congress in order
to subject the articles sold by the plaintiff to the
tax under (c) of Section 606. There is nothing in
the statute which intimates that such was the Con-
gressional intent, The decision of the District Court
for the Northern District of California in A. P.
Bardet, et al., d.b.a. Pioneer Motor Bearing Co. v.
United States, No. 20364L, decided May 18, 1938,
384 C. C. H. p. 10,589, wherein the taxpayers suing
are competitors of the plaintiff who had engaged in
a like process and business of rebabbiting connec-
tion rods of automobile engines, as the taxpayer,

34 United States of America vs.

and who were held not to be manufacturers under
the same statute as here involved, persuades us to
conclude that the operations and practices shown by
the record before us are neither manufacture nor
production of automobile parts within the meaning
of subsection (c) of Section 606, Revenue Act 1932.

Our conclusions are also supported by the deci-
sion of the District Court (Mo., 1937) in Hempy-
Cooper Mfg. Co. v. United States, 19 Am. Fed. Tax
Reports 1313, and Con-Rod Exchange, Inc., v. Hen-
drickson (D. C, W. D. Wash., 1939) 28 F. Supp.
924. These cited tax cases involved rebabbited con-
necting rods of automobiles, and we think they pre-
sent situations identical with the record before us
in this action.

For the sake of uniformity, if for no other reason,
taxpayers identically situated and doing precisely
the same thing in relation to tax laws should be
treated alike. Our inquiries and investigations have
failed to disclose that the government has taken ap-
peal in the cases referred to, and we are therefore
justified in assuming that refunds have been made
to the respective taxpayers situated as is the plain-
tiff taxpayer in [34] this action.

We are not unmindful of the decision of the
Seventh Circuit Court of Appeals in Clawson &
Bals, Inc., v. Harrison, Collector, 108 F. 2d 991,
reaching a contrary conclusion as to the meaning
of the terms "manufacturer'' and "producer" as
applied to rebabbiting activities similar to those
shown by the record before us. This decision by a

J. Leslie Morris Co., Inc. 35

federal appellate court is entitled to and has been
given careful study and respectful consideration.
We feel, however, that no adequate discussion is
to be found in the opinion of the court, differen-
tiating between the broad meaning of the terms in
matters of general concern and those relating spe-
cifically to tax laws. Such a distinction is supported
by eminent authority, and we believe it must be
regarded in ascertaining the meaning of tax legis-
lation where the taxing statute itself does not clearly
define the meaning of terms contained in it. See
Hartramft v. Wiegman, 121 IT. S. 609; Kuenzle v.
Collector, etc., 32 Philippine 516, and Heacock Co.
v. Collector, etc., 37 Philippine 979.

We think the rule of stare decisis is not appli-
cable to the decision of the learned Court of Ap-
peals of the Seventh Circuit. See Continental Se-
curities Co., v. Interborough R. T. Co., 165 Fed. 945,
at p. 960.

Inasmuch as our Circuit Court of Appeals has
not considered or decided the question under consid-
eration in this action, we are justified in formulat-
ing and reaching our own conclusions under the
record before us and in the light of other identical
situations considered and determined uniformly by
the federal courts of the Ninth Circuit. Accordingly,
as the plaintiff taxpayer has not passed on the tax
to the customer or to anyone, it is entitled to recover
the amount illegally collected, and the government
is not entitled to anything [35] under its counter-
claim.

36 United States of America vs.

Findings and judgment are ordered for the plain-
tiff and against the defendant as prayed under the
issues of complaint, answer and counterclaim.

Dated this July 24, 1940.

[Endorsed] : Filed Jul. 24, 1940. R, S. Zimmer-
man, Clerk. By Francis E. Cross, Deputy Clerk.

[36]

[Title of District Court and Cause.]

FINDINGS OF FACT AND CONCLUSIONS

OF LAW

The above entitled cause came on regularly for
trial on the 28th day of May, 1940, at the hour of
10 o'clock A. M. in the above entitled court, the
Honorable Paul J. McCormick, Judge, presiding,
a jury having been expressly waived. Darius F.
Johnson, Esquire and Messrs. Meserve, Mumper &
Hughes, appearing for plaintiff and Ben Harrison,
United States Attorney, E. H. Mitchell, Assistant
United States Attorney, Armond Monroe Jewell,
Assistant United States Attorney and Eugene Har-
pole, Special Attorney, Bureau of Internal Rev-
enue, appearing for the defendant United States of
America, and evidence both oral and documentary
having been introduced and the court being fully
advised in the premises, and the cause having been
submitted for decision, the court now makes its
findings of fact as follows:

J. Leslie Morris Co., Inc. 37

FINDINGS OF FACT

I.

The court finds that the plaintiff, J. Leslie Morris
Company, Inc., at all times herein mentioned was,
and now is, a corporation duly organized and exist-
ing under and by virtue of the laws of the State of
California, with its principal place of business lo-
cated in the City of Los Angeles, County of Los
Angeles, State of California. Said principal place
of business is located within the 6th Collection Dis-
trict of California. [37]

That the Articles of Incorporation of plaintiff set
forth the following purposes of its incorporation :

"To own, maintain and operate a business
for the manufacture, sale and distribution of
automotive and industrial bearing metals and
products.

To own, maintain and operate branch plants
and offices in the State of California and else-
where for the manufacture, sale and distribu-
tion of such metals and products.

To acquire land, buildings and personal prop-
erty in the State of California and elsewhere
for the purposes of establishing, maintaining
and operating such plants and offices as may
be necessary for the manufacture, sale and dis-
tribution of such metals and products.

To acquire, by purchase, lease or assignment,
patents and patent rights bearing on the manu-
facture of such metals and products.

38 United States of America vs.

To acquire, by purchase, lease or assignment,
plants or businesses of other persons, firms or
corporations for the further development of the
business of this corporation, and to acquire and
hold shares of stock and bonds of other cor-
porations, and to sell, exchange or otherwise
dispose of or trade in such shares and bonds.

To do any and all things necessary to prop-
erly carry on the business of the corporation,
and to do any and all things necessary or inci-
dent to the carrying of the various lines of
business in which this corporation may now or
hereafter be engaged."

That plaintiff stated in its Capital Stock Tax
returns for the years 1933, 1934 and 1935, in answer
to the question: " Nature of [38] Business in De-
tail", as follows: (1933) " Manufacture motor bear-
ings"; (1934) "Rebabbitting Connecting Rods";
and (1935) "Rebabbitting Connecting Rods". That
plaintiff stated in its Corporation Franchise Tax
returns for the years 1932, 1933 and 1934, in answer
to the question "Kind of Business", as follows:
(1932) "Mfg. Motor Bearings"; (1933) "Mfg. Mo-
tor Bearings"; and (1934) "Mfg. Motor Bearings".

II.

The court finds that one Nat Rogan was, to wit,
July 30, 1935, and prior thereto, and thence con-
tinuously up to and including the date of the filing
of plaintiff's complaint, Collector of Internal Rev-

J. Leslie Morris Co., Inc. 39

enue of the United States for the 6th District of
California.

III.
The court finds that the tax and interest involved
herein arises under the laws of the United States
providing for internal revenue and more specifically
under Section 606 '(c) of the Internal Revenue Act
of 1932. That all of the taxes and interest sued for
herein were assessed and imposed in respect of sales
by plaintiff of rebabbitted automobile connecting
rods during the period from June 21, 1932, to Au-
gust 1, 1935. All of said connecting rods were manu-
factured by persons, firms or corporations other
than plaintiff and before their acquisition by plain-
tiff, had been used as operating parts for automobile
motors, and by reason of such use the babbitt metal
lining constituting a part of said connection rods
had become worn, chipped, roughened and otherwise
impaired; except that when plaintiff's stock was low
in certain sizes plaintiff would purchase new rods
which had never been used from automotive manu-
facturers or their representatives and sell them to
its customers. The percentage of new rods thus sold,
however, is very small — less than five (5) per cent.

IV.

The court finds that none of the articles sold by
this [39] plaintiff, on which the tax sued for herein
was assessed and paid, were manufactured or pro-
duced or imported by said plaintiff; that plaintiff
is, and at all times herein mentioned was, engaged

40 United States of America vs.

in the business of repairing and rebabbitting worn
and damaged automobile connecting rods; that the
process used was only a repair and did not change
the identity of the parts in any manner, trade-
names and model numbers appearing thereon were
not altered or removed; that all of the connecting
rods sold by plaintiff were packed by plaintiff in
cartons bearing its trade name, "Moroloy bearing
service" and stating, "Rebabbitted Connecting
Rods, Centrifugally Cast, Accurately Machined ".

It is true that used connecting rods received by
plaintiff from automotive jobbers represent about
85% of the rods received by plaintiffs; about 10%
are received from commercial accounts and about
5% received from automobile dealers. The rods to
be rebabbitted are received in packages containing
from one rod to one hundred rods per package;
however, the packages average between twenty and
sixty rods per package. The shippers deliver them
to the plaintiff. The rods are removed from the
packages and checked against the packing slips.
Any special instructions regarding rebabbitting are
removed from the package at this time. About 20%
of the rods carry these special specifications, re-
quired usually because of undersizes or that the
same bushings are to remain.

It is true that the used rods are segregated ac-
cording to their respective types and any pin bush-
ings are removed. (About ^2 the r°ds have a clamp
type shank end and require no pin bushings). They
are removed by an arbor press or with a hammer

J. Leslie Morris Co., Inc. 41

and chisel. On about % of the rods it is necessary
to remove the nuts and bolts and use auxiliary nuts
and bolts during the process in order that the orig-
inal nuts and bolts may be used again. A power
driven socket wrench is used on all nuts. [40]

It is true that the babbitt is then melted from
the bearing end of the rod by placing that end into
a solution of molten babbitt. Any remaining babbitt
adhering is chipped off with a chisel and the bear-
ing end of the rod is then cleaned with hydrochloric
acid. The bearing end of the rod is then dipped into
molten tin or solder so that the babbitt when poured
will bond to the rod. The nuts are removed using
the same power driven socket wrench and steel sepa-
rators are inserted between the cap and the shank
and the nuts and bolts are replaced. Separators keep
the cap from adhering to the shank when the bab-
bitt is applied. Model A Ford rods require no sepa-
rators. Any oil holes in the bearing end of the rod
are plugged with asbestos wicking, small corks, or
even toothpicks in order to prevent the babbitt from
plugging the oil holes during the rebabbitting
process.

It is true the bearing end of the rod is inserted
into a mould mounted on a revolving spindle at
right angle to the axis of the spindle. The rod is
then rotated and by means of a hand ladle molten
babbitt is poured through an opening in the mold.
The centrifugal force spreads it evenly over the
inside surface of the bearing end of the rod. On
about 25% of the rods, the rebabbitting must be

42 United States of America vs.

done by hand. This is accomplished by placing the
bearing end of the rod in a stationary mould and
after calking, babbitt is poured into the space cov-
ering the inside surface of the rod.

It is true the rods are then cleaned by an oakite
bath. Steel separators are then removed by means
of another power driven socket wrench and any
auxiliary nuts and bolts are removed and the origi-
nals replaced. A revolving sand paper disk is used
to remove adhering particles of babbitt, Two drill
presses are used to clean out the oil holes. The rods
are then dipped in a rust preventive and hung on
a rack to dry. The rods are then placed in a lathe
and the babbitt is rough bored, faced and cham-
fered. The babbitt on about 20% of the rods must
be bored to special undersize as ordered; a second
lathe [41] is used for this purpose. A hand milling
machine is used to cut oil pockets in the babbitt.
About 50% of the rods rebabbitted require oil pock-
ets. A slotting tool is used to separate rod and cap
on Model A Ford rods. This operation leaves neces-
sary oil grooves in the babbitt. A circular saw is
used to notch the babbitt flange. About % 0I* ^e
rods require new bushings in the small end of the
shank, wThich are installed by a hand operated arbor
press. Approximately 50% of the rods require the
babbitt flange to be faced by a special tool placed
in a drill press. Model A Ford and 6 cylinder Chev-
rolet rods require an oil groove on the face of the
babbitt bearing which is cut in the shape of a figure
8 by a hand operated grooving machine. Certain

J. Leslie Morris Co., Inc. 43

Pontiac bearings require a continuous oil groove
around the center of the babbitt, which is cut by a
motor driven cutting tool.

It is true all of the rods except the 20% which
are finished to special undersize, on the lathe, are
finished to standard size by means of a hydraulical-
ly operated broaching machine. On Model A Ford
rods, it is necessary to use a chamfering tool mount-
ed in a drill press to smooth the very thin pin bush-
ings used in these rods. All rods are then given a
final inspection and new nuts and bolts replaced
where necessary. The rods are then boxed and ready
for shipment.

That plaintiff issued illustrated catalogues con-
taining price lists and advertising and also issued
price lists; that both the price lists and the cata-
logues were issued under the name of "Moroloy
Bearing Service" and referred to the rods as "Re-
babbitted"; that in the catalogues and price lists
plaintiff held itself out to be a company with
branches from coast to coast and listed between
fourteen and fifteen branches through the United
States and Canada. The catalogues referred to these
branches in the following statement :

" Service
Fifteen manufacturing branches located at
strategic points [42] over the United States
and Canada, rendering a coast to coast service,
convenient to every jobbing center. Ample stock
at all branches assure same day shipment. Tele-

44 United States of America vs.

phone and telegraphic orders receive instant
attention."

That the invoices of plaintiff bore this title:
"Moroloy bearing service, J. Leslie Morris Co,,
Inc." and under this title were a list of addresses
in thirteen different cities in the United States and
Canada purporting to be branches.

V

The court finds that on or about the 18th day of
November, 1935, the defendant, acting by and
through the Bureau of Internal Revenue of the
Treasury Department, and the Collector of Internal
Revenue for the Sixth District of California, deter-
mined that there were due from plaintiff, pursuant
to the provisions of Section 606 (c) of the Internal
Revenue Act of 1932, certain excise taxes together
with interest thereon, upon the sale by plaintiff of
rebabbitted automobile connecting rods, in the sum
of $6,800.59; and pursuant to such determination
the defendant assessed said taxes and interest, or
feaused the same to be assessed against the plaintiff,
and the Collector of Internal Revenue for the Sixth
District of California made demand upon plaintiff
for the payment of said taxes and interest.

VI

The court finds that pursuant to the aforesaid
demand, the plaintiff paid to the Collector of Inter-
nal Revenue of the United States for the Sixth Dis-
trict of California, the sum of $500.00, on or about
the 1st day of September, 1937.

J. Leslie Morris Co., Inc. 45

VII

The court finds that on or about the 18th day of
November, 1937, in accordance with the provisions
of the Internal Revenue Act of 1932, the plaintiff
duly filed with the Collector of Internal [43] Reve-
nue of the United States for the Sixth District of
California, at his office in the City of Los Angeles,
State of California, a claim for refund of said
$500.00, representing tax and interest paid under
provisions of Section 606 (c) of the Internal Reve-
nue Act of 1932; that said claim for refund was
duly filed on Official Form Number 843 ; that in said
claim for refund plaintiff alleged and set forth as
the grounds for the refund claimed, as follows, to
wit:

" Commissioner of Internal Revenue,
Washington, D. C.

Sir: Re: J. Leslie Morris Co. Inc

1361 S. Hope St.,
Los Angeles, Calif.

Under account number Nov. 36 Misc 2027-1
your office assessed $6,800.59 against the above
taxpayer to cover the manufacturer's excise tax
on the sale of rebabbitted automobile connect-
ing rods during the period from June 21, 1932,
to August 1, 1935. On September 1, 1937, this
taxpayer made a payment of $500.00 on said
assessment.

The above payment of $500.00 represents a
payment by this taxpayer on the liability as

46 United States of America vs.

established by the commissioner's office. This
tax has not been passed on to the purchaser in
any manner, either by separate billing or by a
raise in prices.

The J. Leslie Morris Co., Inc., is engaged in
the business of rebabbitting worn automobile
connecting rods. The process is only a repair
and does not alter the identity of the rod as
established by the manufacturer. The finished
article is clearly marked to show that the re-
pair work was done by this taxpayer. The fin-
ished article is packed in a carton marked "re-
babbitted" and bearing the statement "Our fa-
mous spinning process used in repairing this
connecting rod." This company is well known
to the automobile trade as a rebabbitter of rods.
They have never manufactured a new [44] rod,
and could not do so if they wished for the rea-
son that they have not the equipment which
would be necessary to make a new rod.

It is contended that since the rebabbitted con-
necting rods do not lose their original identities
and since the rebabbitting is only a repair pro-
cess, that no tax should attach upon the sale
thereof. This contention is based on the rulings
pertaining to the rebuilding of storage batter-
ies, automobile engines and upon the following
rulings and decisions :

S. T. 458 C. H. June, 1925, p. 253. This ruling
held that wThere the manufacturer of automo-
bile truck chassis, in the sale of his products,

J. Leslie Morris Co., Inc. 47

took in part payment trucks of his own make,
some of which were repaired by replacing un-
serviceable parts by new parts, that no tax
would attach to the sale thereof under 'Section
600 (3) of the Internal Revenue Act of 1924,
but that a tax was due on the sale of the new
parts used in the repairing of the old trucks.
Some used chassis were dismantled and usable
parts were used in the manufacture of truck
chassis, together with other salvaged parts and
new parts, producing a chassis which had no
previous existence. Only in the latter instance
would tax attach to the sale.

This policy was continued with reference to
used motorcycles by a ruling published in 1932.
(S. T. 514, C. B. December, 1932, p. 471) :

• " Where manufacturer A accepts as a
trade-in a used motorcycle made by manufac-
turer B, the resale by manufacturer A is not
taxable because it is not a sale by the manu-
facturer, producer or importer. However, in
the event that used motorcycles are so ma-
terially changed before being resold as to lose
their original identity, the resale of such ma-
chine is subject to the tax imposed by section
606 (b) of the Internal Revenue Act of
1932." '

In a case relating to retreading of automobile
tires, [45] published in 1933, the Bureau of
Internal Revenue once more applied the same
rule. (S. T. 648, C. B. June, 1933, p. 304):

48 United States of America vs.

i "The retreading of old tires by resurfac-
ing or replacing of the actual tread down to
the tread line, without altering the side walls
or destroying the original identity of the tire,
does not constitute the manufacture of a tax-
able article.' ' '

This rule was extended by J. C. Skinner vs.
United States to exclude all retreaded tires
from this tax. In this case the court said that
retreaded tires were known to the automobile
trade for many years prior to the enactment
of the Internal Eevenue Act of 1932 and that
if Congress had intended that the tax should at-
tach to the sale of retreaded tires that such
provision would have been put in the act, and
that since such provision was not put in the act
it appears that Congress intended for the tax
to attach only to the sale of new tires.

This rule was continued by the Federal Court
in Monteith Brothers Company vs. United
States, rendered October 5, 1936, and in Hempy-
Cooper Manufacturing Company vs. United
States. Both these cases related to the taxability
of rebabbitted connecting rods and rewound ar-
matures. The Court found in favor of the plain-
tiff in both these cases, and adopted findings
which left no doubt as to the sale of rebabbitted
connecting rods being free of tax.

Attention is called to a letter to the National
Standard Parts Association, Detroit Michigan,
over the signature of Mr. D. S. Bliss, dated

J. Leslie Morris Co., Inc. 49

June 30, 1936, in which it was held that no tax
attached to the sale or exchange of rebuilt auto-
mobile engines, even though many new parts
were used. Apparently it was presumed that all
the parts had been purchased tax paid. In this
letter Mr. Bliss mentioned that • repaired con-
necting rods' were used in the rebuilt engine
[46] under consideration.

In view of the foregoing rulings and court
decisions it is impossible to reconcile the action
of the Bureau of Internal Revenue in holding
that the sale of rebabbitted connecting rods is
subject to tax. The intent of the above authori-
ties is very clear and leaves no doubt as to the
law applicable in the instant case. Accordingly,
taxpayer claims that the tax referred to here-
tofore was unjustly and illegally collected and
should be refunded.

J. LESLIE MORRIS COM-
PANY, INC.,
By J. LESLIE MORRIS,

President."
VIII
The court finds that on or about the 25th day of
March, 1938, the Commissioner of Internal Revenue
of the United States rejected and disallowed plain-
tiff's said claim for refund of $500.

IX

The court finds that pursuant to the demand of
defendant, all as hereinabove set forth, plaintiff

50 United States of America vs.

paid to the Collector of Internal Revenue of the
United States for the Sixth District of California,
the sum of $500 on or about the 22nd day of April,
1938.

X
The court finds that on or about the 7th day of
June, 1938, in accordance with the provisions of
the Internal Revenue Act of 1932, the plaintiff duly
filed with the Collector of Internal Revenue of the
United States for the Sixth District of California,
at his office in the City of Los Angeles, State of
California, a claim for the refund of said $500.00
representing tax and interest paid under provisions
of Section 606 (c) of the Internal Revenue Act of
1932; that said claim for refund was duly filed on
official form number 843; that in said claim for re-
fund plaintiff alleged and set [47] forth as the
grounds for the refund claimed, as follows, to wit:

" Commissioner of Internal Revenue,

Washington, D. C.

Sir: Re: J. Leslie Morris Company, Inc.,

1361 S. Hope Street
Los Angeles, California.

Under Account Number Nov. 36 Misc. 20-27-1
your office assessed $6800.59 against the above
taxpayer to cover the manufacturer's excise tax
on the sale of rebabbitted automobile connect-
ing rods during the period from June 21, 1932,
to August 1, 1935. On April 21st, 1938, this tax-
payer made a payment of $500.00 on said as-

J. Leslie Morris Co., Inc. 51

sessment. The above payment of $500.00 repre-
sents a payment by this taxpayer on the liability
as established by the Commissioner's office. This
tax has not been passed on to the purchaser in
any manner, either by separate billing or by a
raise in prices.

The J. Leslie Morris Company, Inc., is en-
gaged in the business of rebabbitting worn auto-
mobile connecting rods. The process is only a
repair and does not alter the identity of the
rods as established by the manufacturer. The
finished article is clearly marked to show that
the repair work was done by this taxpayer. The
finished article was packed in a carton marked
"rebabbitted" and bearing the statement "Our
famous spinning process used in repairing this
connecting rod". This company is well known
to the automobile trade as a rebabbitter of rods.
They have never manufactured a new rod, and
could not do so if they wished for the reason
that they have not the equipment which would
be necessary to make a new rod.

It is contended that since the rebabbitted con-
necting rods do not lose their original identi-
ties and since the rebabbitting is only a repair
process, that no tax should [48] attach upon
the sale thereof. This contention is based on the
rulings pertaining to the rebuilding of storage
batteries, automobile engines and upon the fol-
lowing rulings and decisions :

52 United States of America vs.

S. T. 458 C. B. June 1925, p. 265. This ruling
held that where the manufacturer of automo-
bile truck chassis in the sale of his product,
took in part payment trucks of his own make,
some of which were repaired by replacing un-
serviceable parts by new parts, that no tax
would attach to the sale thereof under Section
600 (3) of the Internal Eevenue Act of 1924,
but that a tax was due on the sale of the new
parts used in the repairing of the old trucks.
Some used Chassis were dismantled and usable
parts were used in the manufacture of truck
chassis, together with other salvaged parts and
new parts, producing a chassis which had no
previous existence. Only in the latter instance
would tax attach to the sale.

This policy was continued with reference to
used motorcycles by a ruling published in 1932.
(S. T. 514, C. B. Dec. 1932, p. 471) :

1 Where manufacturer A accepts as a trade-
in a used motorcycle made by manufacturer
B, the resale by manufacturer A is not tax-
able because it is not a sale by the manufac-
turer, producer or importer. However, in the
event that used motorcycles are so materially
changed before being resold as to lose their
original identity, the resale of such machine
is subject to the tax imposed by Section 606
(b) of the Internal Revenue Act of 1932. '

In a case relating to retreading of automobile
tires published in 1933, The Bureau of Inter-

J. Leslie Morris Co., Inc. 53

nal Revenue once more applied the same rule.
(S. T. 648 C. B. p. 384) :

'The retreading of old tires by resurfacing
or replacing of the actual tread down to the
tread line, without altering the side walls or
destroying the original identity of the tire,
does not constitute the manufacture of a tax-
able article.' [49]

This rule was extended by J. C. Skinner v.
United States to exclude all retreaded tires
from this tax. In this case the court said that
retreaded tires were known to the automobile
trade for many years prior to the enactment of
the Internal Revenue Act of 1932 and that if
Congress had intended that the tax should at-
tach to the sale of retreaded tires that such pro-
vision would have been put in the act, and that
since such provision was not put in the act it
appears that Congress intended for the tax to
attach only to the sale of new tires.

This rule was continued by the Federal Court
in Montieth Bros. Company vs. United States
rendered October 5, 1936, and in Hempy-Cooper
Manufacturing Company v. United States. Both
these cases related to the taxability of rebab-
bitted connecting rods and rewound armatures.
The court found in favor of the plaintiff in
both of these cases, and adopted findings which
left no doubt as to the sale of rebabbitted con-
necting rods being free of tax.

54 United States of America vs.

Attention is called to a letter to the National
Standard Parts Association, Detroit, Mich.,
over the signature of Mr. D. S. Bliss in which
it was held no tax attached to the sale of ex-
change of rebuilt automobile engines, even
though many new parts were used. Apparently
it was presumed that all the parts had been
purchased tax paid. In this letter Mr. Bliss
mentioned that ' repaired connecting rods' were
used in the rebuilt engine under consideration.

In view of the foregoing rulings and court
decisions it is impossible to reconcile the action
of the Bureau of Internal Revenue in holding
that the sale of rebabbitted [50] connecting
rods is subject to tax. The intent of the above
authorities is very clear and leaves no doubt
as to the law applicable in the instant case. Ac-
cordingly, taxpayer claims that the tax referred
to heretofore was unjustly and illegally col-
lected and should be refunded.

J. LESLIE MORRIS COM-
PANY, INC.
By J. LESLIE MORRIS,

President. "

XI

The court finds that on or about the 7th day of
April, 1939, the Commissioner of Internal Revenue
of the United States rejected and disallowed plain-
tiff's said claim of $500.00.

J. Leslie Morris Co., Inc. 55

XII

The court finds that pursuant to the demand of
defendant, all as hereinabove set forth, plaintiff
paid to the Collector of Internal Revenue of the
United States for the Sixth District of California,
the sum of $500 on or about the 13th day of August,
1938.

XIII

The Court finds that on or about the 20th day of
August, 1938, in accordance with the provisions of
the Internal Revenue Act of 1932, the plaintiff duly
filed with the Collector of Internal Revenue of the
United States for the Sixth District of California,
at his office in the City of Los Angeles, State of
California, a claim for refund of said $500.00, rep-
resenting tax and interest paid under provisions of
Section 606 (c) of the Internal Revenue Act of
1932 ; that said claim was duly filed on official form
number 843; that in said claim for refund plaintiff
alleged and set forth as the grounds for the refund
claimed, as follows, to wit :

" Commissioner of Internal Revenue,
Washington, D. C.

Re: J. Leslie Morris Co., Inc.,
1361 S. Hope St.
Dear Sir: Los Angeles, Calif. [51]

Under account number Nov. 26 Misc. 2027-1
your office assessed $6,800.59 against the above
taxpayer to cover the manufacturer's excise tax
on the sale of rebabbitted automobile connect-

56 United States of America vs.

ing rods sold during the period from June 21,
1932 to August 1, 1935. On August 9, 1938, this
taxpayer made a payment of $500.00 on said as-
sessment.

The J. Leslie Morris Company is engaged in
the business of rebabbitting worn automobile
connecting rods. The process is only a repair
and does not alter the identity of the rod as
established by the manufacturer. The finished
article is clearly marked to show that the repair
work was done by this taxpayer and is packed
in a carton marked "Re-Babbitted" and bear-
ing the statement "Our famous spinning pro-
cess used in repairing this connecting rod."
This Company is well known to the automobile
trade as re-babbitter of connecting rods. They
have never manufactured a new rod, and could
not do so for the reason that they have not the
necessary equipment.

It is contended that since the rebabbitted con-
necting rods do not lose their original identity
and since the rebabbitting is only a repair, that
no tax should attach upon the sale thereof. Our
contention is based on the actual facts and the
following Treasury decisions and Court deci-
sions :

S. T. 458 C. B. June 1925, p. 253. This ruling
held that where the manufacturer of automo-
bile truck chassis, repaired used trucks by re-
placing worn parts with new parts, that no tax
attached to the sale thereof under section 606

J. Leslie Morris Co., Inc. 57

(3) of the Internal Eevenue Act of 1924, but
that a tax would attach to the sale of the new
parts used therein.

This policy was continued with reference to
the sale of used motorcycles by a ruling pub-
lished in 1932. S. T. 514, [52] C. B. December
1932, p. 471. In this instance the Bureau held:
' Where manufacturer A accepts as a trade-
in a used motorcycle made by manufacturer
B, the resale by manufacturer A is not a sale
by the manufacturer, producer or importer.
However, in the event that used motorcycles
are so materially changed before being resold
as to lose their original identity, the resale
of such machine is subject to the tax imposed
by section 606 (b) of the Internal Revenue
Act of 1932/

In a case relating to retreading of automobile
tires, published in 1933, the Bureau of Internal
Revenue once more applied the same rule. S. T.
648, C. B. June 1933, page 384.

'The retreading of old tires by resurfacing
or replacing of the actual tread down to the
tread line, without altering the side walls or
destroying the original identity of the tire,
does not constitute the manufacture of a tax-
able article.'

The above rule was followed by the United
States District Court in J. C. Skinner v. United
States, Federal Supplement 999. In this case the

58 United States of America vs.

Court said that retreaded tires were known to
the automobile trade for many years prior to
the enactment of the Internal Revenue Act of
1932 and that if Congress had intended that the
tax should attach to the sale of retreaded tires,
that such provision would have been put in the
act, and that since such provision was not put
in the act it appears that Congress intended for
the tax to attach only to the sale of new tires.

This rule was continued by the Federal Dis-
trict Court in Montieth Brothers Company vs.
United States, Hempy-Cooper Manufacturing
Company vs. United States and Pioneer Motor
Bearing Company vs. United States.

In view^ of the foregoing decisions and the
fact that the rebabbitting process does not alter
the original identity of the connecting rods, it
is claimed that no tax is due upon the sale
thereof, and that the $500.00 payment referred
to above was unjustly and illegally collected and
should be [53] refunded.

J. LESLIE MORRIS COM-
PANY, INC.
By J. LESLIE MORRIS,

President."

XIV

The court finds that on or about the 7th day of
April, 1939, the Commissioner of Internal Revenue
of the United States rejected and disallowed plain-
tiff's said claim for refund of $500.00.

J. Leslie Morris Co., Inc. 59

XV

The court finds that the tax and interest covered
by this suit has not been added to, or included in
the sale price of any of the connecting rods rebab-
bitted by plaintiff, nor has said tax or interest been
collected from the purchasers, either directly or in-
directly.

CONCLUSIONS OF LAW

From the foregoing findings of fact, the court
concludes as a matter of law, the following:

1. That plaintiff has complied with all statutory
requirements constituting conditions precedent to
the institution and maintenance of this suit; that
plaintiff's claims for refund of tax and each of
them, are legally sufficient to constitute a claim for
refund ; that defendant waived any and all grounds
for rejection of plaintiff's claims as set forth here-
inabove and each of them, which grounds were not
set forth by defendant in its notice of rejection.

2. That the excise tax imposed by Section 606
(c) of the Internal Eevenue Act of 1932 does not
apply to the sale of used connecting rods by plain-
tiff which were rebabbitted as hereinbefore set
forth.

3. That the process of rebabbitting the used con-
necting rods by plaintiff as hereinabove set forth,
does not constitute manufacturing or production,
but is only repair and the plaintiff was not [54]
during the time involved in this action, the manu-
facturer, producer or importer of connecting rods

60 United States of America vs.

within the meaning of Section 606 (c) of the In-
ternal Eevenue Act of 1932.

4. That Section 606 (c) of the Internal Revenue
Act of 1932, does not levy a tax on the sale of used
connecting rods rebabbitted as set forth in the with-
in findings of fact and, therefore, the assessment
heretofore alleged is illegal and void.

5. That under the evidence and the law, the
plaintiff is entitled to a judgment against defend-
ant in the sum of $1500.00.

Judgment is hereby ordered to be entered accord-
ingly.

Dated: August 21st, 1940.

paul j. Mccormick

Judge of the United States
District Court.
Approved as to form in accordance with Rule 8.
ARMAND MONROE JEWELL,

Assistant United States Attorney.

[Endorsed] : Filed Aug. 21, 1940. R. S. Zimmer-
man, Clerk. By B. B. Hansen, Deputy Clerk. [55]

J. Leslie Morris Co., Inc. 61

In the District Court of the United States Southern
District of California, Central Division

No. 433-M— Civil

J. LESLIE MORRIS COMPANY, INC.,

Plaintiff,

vs.

UNITED STATES OF AMERICA,

Defendant.

JUDGMENT

The above entitled cause came on regularly for
trial on the 28th day of May, 1940, at the hour of
10 o'clock A.M. in the above entitled court, the
Honorable Paul J. McCormick, Judge, presiding, a
jury having been expressly waived. Darius F. John-
son, Esquire and Messrs. Meserve, Mumper &
Hughes, appearing for plaintiff, and Ben Harrison,
United States Attorney, E. H. Mitchell, Assistant
United States Attorney, Armond Monroe Jewell,
Assistant United States Attorney and Eugene Har-
pole, Special Attorney, Bureau of Internal Reve-
nue, appearing for the defendant United States
of America, and evidence both oral and documen-
tary having been introduced, and the court being
fully advised in the premises, and the cause having
been submitted for decision, and the court having
filed herein its findings of fact and conclusions of
law in accordance therewith:

Now therefore, it is hereby ordered, adjudged and
decreed that plaintiff have judgment against de-

62 United States of America vs.

f endant in the sum of $1500 ; that defendant recover
nothing under its counterclaim.

Dated: August 21st, 1940.

PAUL J. McCORMICK,

Judge of the United States District Court.
Approved as to form in accordance with Rule 8.
ARMOND MONROE JEWELL,

Assistant United States Attorney.
Judgment entered Aug. 21, 1940.
Docketed Aug. 21, 1940.
Book C. O. 3, Page 515.

R. S. ZIMMERMAN,

Clerk.
By B. B. HANSEN,

Deputy.

[Endorsed] : Piled Aug. 21, 1940. R. S. Zimmer-
man, Clerk. By B. B. Hansen, Deputy Clerk. [56]

[Title of District Court and Cause.]

NOTICE OP APPEAL

Notice is hereby given that the United States of
America, defendant above named, hereby appeals
to the United States Circuit Court of Appeals for
the Ninth Circuit, from that certain judgment en-
tered in the above-entitled suit, numbered herein
No. 433-M, on the 21st day of August, 1940, in which
suit J. Leslie Morris Company, Inc., is plaintiff.

J. Leslie Morris Co., Inc. 63

Dated : November 19, 1940.

WM. FLEET PALMER,

United States Attorney.
E. H. MITCHELL,
Assistant United States Attorney.
ARMOND MONROE JEWELL,
Assistant United States Attorney.
By ARMOND MONROE JEWELL,
Attorneys for Defendant.
Copy mailed Nov. 20, 1940, to Darius P. Johnson,
Esq., Atty for Plaintiff, 1124 Van Nuys Bldg., Los
Angeles, Calif.

R. S. ZIMMERMAN,

Clerk.
By E. L. S.,

Deputy Clerk.

[Endorsed]: Piled Nov 19, 1940. R. S. Zimmer-
man, Clerk. By Edmund L. Smith, Deputy Clerk.

[57]

[Title of District Court and Cause.]

ORDER EXTENDING TIME TO PILE REC-
ORD AND DOCKET ON APPEAL

Good cause appearing therefor, it is hereby or-
dered that the defendant appellant may have to
and including February 7, 1941, within which to
file its record and docket the above-entitled cause
on appeal to the Circuit Court of Appeals for the
Ninth Circuit.

64 United States of America vs.

Dated: This 18th day of December, 1941.
PAUL J. McCORMICK,

United States District Judge.

[Endorsed]: Filed Dec 18, 1940. R. S. Zimmer-
man, Clerk. By Edmund L. Smith, Deputy Clerk.

[58]

[Title of District Court and Cause.]

ORDER EXTENDING TIME TO FILE
RECORD AND DOCKET CAUSE ON APPEAL

Good cause appearing therefor, it is hereby or-
dered that the defendant appellant may have to
and including February 17, 1941, within which to
file its record and docket the above-entitled cause
on appeal to the Circuit Court of Appeals for the
Ninth Circuit.

Dated : This 5th day of February, 1941.
PAUL J. McCORMICK,

United States District Judge.

[Endorsed]: Filed Feb. 5, 1941. R. S. Zimmer-
man, Clerk. By J. M. Horn, Deputy Clerk. [59]

[Title of District Court and Cause.]

ORDER PERMITTING ORIGINALS TO BE
SENT TO CIRCUIT COURT IN LIEU OF
COPIES.

Good cause being shown therefor, it is hereby or-
dered that all of the original papers and exhibits in

J . Leslie Morris Co., Inc. 65

the above-entitled case may, pursuant to Rule 75 (i)
of the Federal Rules of Civil Procedure, be sent to
the United States Circuit Court of Appeals for the
Ninth Circuit, in lieu of copies thereof, and said
papers and exhibits may, by designation and stipu-
lation of the parties, become part of the record
on appeal in the above-entitled case.

Dated : this 5th day of February, 1941.
PAUL J. McCORMICK,

Judge.

[Endorsed]: Filed Feb. 5, 1941. R. S. Zimmer-
man, Clerk. By J. M. Horn, Deputy Clerk. [60]

[Title of District Court and Cause.]1

STIPULATION DESIGNATING RECORD
ON APPEAL

Pursuant to Rule 75(f) of the Federal Rules of
Civil Procedure, it is hereby stipulated by and be-
tween the parties hereto, through their respective
counsel, that the following shall constitute the rec-
ord on appeal in the above-entitled case :

1. Complaint.

2. Answer.

3. Notice of transfer of proceedings to Judge
McCormick dated September 19, 1939, signed by
Clerk.

4. Substitution of attorneys authorized April 23,
1940, and accepted April 30, 1940.

5. The Clerk's minutes of the District Court

66 United States of America vs.

dated May 29, 1940, before Honorable Paul J. Mc-
Cormick.

6. The Clerk's minutes of the District Court
dated June 4, 1940, before Honorable Paul J. Mc-
Cormick.

7. The Clerk's minutes of the District Court
dated July 24, 1940, before Honorable Paul J. Mc-
Cormick.

8. Conclusions of the Court dated July 24, 1940,
before Honorable Paul J. McCormick.

9. Findings of fact and conclusions of law signed
by Honorable Paul J. McCormick on August 21,
1940. [61]

10. Judgment signed by Honorable Paul J. Mc-
Cormick on August 21, 1940.

11. Notice of Appeal dated November 19, 1940.

12. Order extending time within which to file
record on appeal and docket cause on appeal dated
December 18, 1940.

13. Order extending time within which to file
record on appeal and docket cause on appeal dated
February 5, 1941.

14. Order permitting original papers and exhib-
its to be sent to the Circuit Court in lieu of cop-
ies on appeal dated February 5, 1941.

15. All volumes of the Reporters Transcript in
the above-entitled case.

16. The following exhibits: (a) Plaintiff's Ex-
hibits 1 to 64 inclusive; (b) Defendant's Exhibits
A to F, inclusive.

J. Leslie Morris Co., Inc. 67

17. This Designation of Record On Appeal.

Dated: February 6, 1941.

WILLIAM FLEET PALMER,

United States Attorney.
EDWARD H. MITCHELL,
Assistant United States Attorney.

ARMOND MONROE JEWELL,
Assistant United States Attorney.
By ARMOND MONROE JEWELL,
Attorneys for Defendant & Appellant.
DARIUS F. JOHNSON, and
MESERVE, MUMPER and
HUGHES,
By SHIRLEY E. MESERVE,
Attorneys for Plaintiff & Appellee.

[Endorsed]: Filed Feb 10, 1941. R. S. Zimmer-
man, Clerk. By Edmund L. Smith, Deputy Clerk.

[62]

[Title of District Court and Cause.]

CERTIFICATE OF CLERK

I, R. S. Zimmerman, Clerk of the United States
District Court for the Southern District of Califor-
nia, do hereby certify that the foregoing pages, nunv
bered 1 to 62, inclusive, contain full, true and cor-
rect copies of the Complaint ; Answer to Complaint ;
Notice of Transfer of Cause to Judge McCormick;
Substitution of Attorneys; Minutes of the Court
dated May 29, 1940, including Minute Order Sub-
mitting Cause; Minute Order dated June 4, 1940,
for Submission of Proposed Findings of Fact and
Conclusions of Law ; Minute Order of July 24, 1940,

68 United States of America vs.

for Judgment; Conclusions of the Court; Findings
of Fact and Conclusions of Law ; Judgment ; Notice
of Appeal; Two Orders Extending Time to File
Record and Docket Cause on Appeal; Order for
Transmittal of Original Exhibits to Circuit Court
of Appeals; and Stipulation Designating Contents
of Record on Appeal ; which, together with the orig-
inal Reporter's Transcript of Proceedings and Tes-
timony, and the original Exhibits, transmitted here-
with, constitute the record on appeal to the Circuit
Court of Appeals for the Ninth Circuit.

Witness my hand and the seal of said District
Court, this 15th day of February, A. D. 1941.
(Seal) R. S. ZIMMERMAN,

Clerk.
By EDMUND L. SMITH,

Deputy Clerk.

[63]

[Title of District Court and Cause.]
TESTIMONY

Appearances :
For the Plaintiff

Darius F. Johnson,
Meserve, Mumper and Hughes.
By Shirley E. Meserve, Esq.,
615 Richfield Building, Los
Angeles, California.

For the Government :

Wm. Fleet Palmer, Acting United
States Attorney.
A. M. Jewell, Assistant United
States Attorney. [64]

J. Leslie Morris Co., Inc. 69

Los Angeles, California
Tuesday, May 28, 1940. 10:00 O 'Clock A. M.

Mr. Meserve: Has your Honor read the plead-
ings?

The Court : Yes, I have.

Mr. Meserve: Mr. Jewell, I think probably the
best way to present our proof would be by the in-
troduction of the pictures first.

The Court: Is there a dispute of fact as to
whether the reconditioning amounted to a recon-
struction ?

Mr. Meserve : That is the issue.

The Court : There is an issue of fact on that ?

Mr. Jewell : No issue of fact of the process par-
ticularly because we have worked together and have
prepared a group of pictures which will be intro-
duced on behalf of the Plaintiff, which illustrates the
process, with a legend upon them. As to whether
or not that particular process amounts to mere re-
pair, as the Plaintiff contends, or, as the Govern-
ment contends, manufacture, is the question before
the Court.

The Court : Is the Court to understand that what
is the issue is the result of the activity, or what you
call the process?

Mr. Jewell : That is correct.

Mr. Meserve: That is correct. That is why I re-
frained from making an opening statement, be-
cause I asked your Honor [65] whether you had
read the pleadings. The issue, to my mind, is sim-

70 United States of America vs.

ply whether we are taxable under the provisions of
Section C 606 of the Revenue Laws. The whole
issue, as I view it, is whether the action of the Plain-
tiff corporation in its business operation consti-
tutes a manufacturing process or whether it is es-
sentially a repair of a mechanical device. In order
to present the matter graphically, Mr. Jewell for
the Government and ourselves have reviewed a se-
ries of photographs, and attached a legend to them
to explain the same, in relation to Plaintiff's busi-
ness, and we intend, of course, to illuminate that by
testimony that cannot be covered by either the leg-
end or the picture.

Mr. Jewell, perhaps we can get in the record our
stated understanding at our meeting yesterday, and
the purpose of these pictures, so we will not be
in confusion as to the stipulation.

Mr. Jewell: Do you want me to state my view
of it?

Mr. Meserve: You can state your view of it,
and if that accords with the way we understood
it, it will not have to be stated twice.

Mr. Jewell: It is hereby stipulated that the se-
ries of photographs to be introduced on behalf of
Plaintiff are true photographs of Plaintiff's busi-
ness establishment as it now exists, and that the
legend appearing beneath each picture constitutes
the testimony of Mr. J. Leslie Morris, president of
Plaintiff corporation, had he been asked those ques-
tions [66] on direct examination.

(The documents referred to was received in

J. Leslie Morris Co., Inc. 71

evidence and marked "Plaintiff's Exhibits 1 to
32 Inch")

[Set Out in Separate Volume.]

Mr. Meserve: That is correct; and is the iden-
tification of the photograph.

Mr. Jewell : That is correct.

Mr. Meserve: And for the sake of saving time.

The Court : Very well.

Mr. Meserve: Is that satisfactory to the Court?

The Court: So understood.

Mr. Meserve: We will offer first a photograph
and legend, that we have indicated as one, which
is

The Clerk: Plaintiff's Exhibit 1 in evidence.

The Court : Does the stipulation go to the extent
that the process or method in use at the applicable
time, under the complaint and answer, was the same
as that depicted or picturized in the photographs?

Mr. Jewell: No, if the Court please, except in-
sofar as the direct testimony of Mr. Morris appear-
ing at the bottom of the picture will go to prove it.
The Government can't stipulate that was the pro-
cess that was used.

Mr. Meserve: We will connect that up, your
Honor.

The Court: Is the Court to understand that the
Government is stipulating that this verbiage that ap-
pears in typewriting under the picture in Plaintiff's
Exhibit 1 may be considered as evidentiary, and
has the same effect as evidence under oath %

Mr. Jewell: That is correct, your Honor, sub-

72 United States of America vs.

ject to [67] the same right of cross examination, if
that appears necessary.

Mr. Meserve: Mr. Jewell and I dictated these
legends together, and corrected them. There is one
other statement I think appropriate to be in the
record. It is to be understood between Plaintiff
corporation and the Government that there will
be no intention to take advantage of phrases in
their perhaps technical application. In other words,
a play of words is not intended by the legend; the
legend is descriptive, and that the facts to be found
by the Court are not to be applied from the leg-
end except as it may be descriptive. That was the
understanding, wasn't it?

Mr. Jewell: Yes.

Mr. Meserve : We got to the point where we were
playing with words, as to whether they would have
effect or not, and Mr. Jewell and I discussed it, and
agreed that the legend was intended only to be de-
scriptive.

Mr. Jewell: I think it can be stated that the
legend is only descriptive, and any use of the words
therein shall not call for a conclusion by the words
themselves pointing toward either repair or man-
ufacture.

The Court: The word "jobber" seems to be
quoted in the legend attached to Exhibit 1.

Mr. Jewell: I believe that is done for the pur-
pose of indicating that it is a sort of a slang name.

Mr. Meserve : In other words, it is a phrase that
has [68~\ been developed in the trade or merchan-

J. Leslie Morris Co., Inc. 73

dising that perhaps is not an accurate statement of
his exact business — jobber.

The Court: There is no issue here of the cor-
rect interpretation of the phrases that appear to
be quoted in the legend?

Mr. Jewell : That is correct.

Mr. Meserve: That is correct.

Mr. Jewell: We don't want the shadings of the
wTords to have bearing upon the legal conclusion, but
they are just used as best we could for descriptive
purposes. For instance, if we use the word "make,"
and that connotes that rods are manufactured by
plaintiff, rather than substitute some other word
we ask that the Court ignore that connotation and
follow the process described pictorially and ver-
bally. For instance, if we stipulated, or Plaintiff,
Mr. Morris, testified that the rods are returned,
there immediately arises an implication that he sent
them out, so we have tried to avoid the use of that
particular word.

Mr. Meserve : The whole question, if your Honor
pleases, is whether or not the J. Leslie Morris Com-
pany manufactured a connecting rod that is used in
the automotive industry, or repairs on existing con-
necting rods.

The Court: Does the Government concede that
to be the sole and exclusive issue in the case?

Mr. Jewell: Not the sole and exclusive issue, be-
cause [69] of this fact: That the tax is levied on
sales by a manufacturer — I don't believe there will
be any controversy, but that method of doing busi-

74 United States of America vs.

ness by the Plaintiff corporation amounted to sales
of these rods which they re-babbitted. Whether or
not those sales were sales by a manufacturer of
automobile accessories will, I believe, under the
cases, draw now only upon the actual process, al-
though principally so, but also upon the manner in
which Plaintiff conducts his business, and the gen-
eral similarity to a manufacturer aside from that
mere process.

The Court: That is what I was talking about;
whether it was trade practice, or whether it is ad-
mitted to be in a certain category. Trade practices
are very material. If it is trade practice that has
been acquiesced in by the Governmental agency, that
is one thing; if it is an open field of investigation,
it is quite another.

Mr. Jewell: The Government contends that all
evidence concerning the manner in which Plaintiff
taxpayer, or the Plaintiff corporation, operates his
business of merchandising the particular product,
or, which construction is described in these pictures,
and will be further elaborated on by testimony, that
all of those facts, and the manner in which it con-
ducts its business are relevant in determining
whether or not sales by it were sales by a manu-
facturer.

The Court : The pleadings set up certain alleged
conclusions by taxing agencies of the Government
relating to re-tread- [70] ing tires, and other fab-
ricated instrumentalities. I want to know whether
those are going to be issues here, or whether you

J. Leslie Morris Co., Inc. 75

are conceding facts of just what was done, regard-
less of the legal results from those facts.

Mr. Jewell: I don't believe I understand your
Honor with respect to those matters appearing in
the pleadings.

The Court : Maybe you have not read the plead-
ings.

Mr. Jewell: I believe I have.

The Court: They cite a number of instances
here in which they claim there is an analogy be-
tween their cases and your cases.

Mr. JewTell: Whether that analogy exists will
depend upon the proof Plaintiff puts on.

Mr. Meserve: Your Honor, I think we are still
back to the fundamental statement I made. The
issue, even though as amplified by Mr. Jewell for
the Government is : Was the J. Leslie Morris Com-
pany, during the time involved in this period, a
manufacturer of a device used in the automotive
industry, or a repairer of a pre-existing device.

The Court: They won't concede that is the sole
and exclusive issue, so we can't save time. I was
going to save time by getting together on an agree-
ment as to what the Court had to decide.

Mr. Meserve: I think your Honor perhaps un-
derstands, although we did not express it in as
precise manner as it should be, that what we mean
is that we are not bound by the language [71] using
the word "make" as an admission of the manufac-
ture, or the word "repair" as an admission by the

76 United States of America vs.

Government that that is the exclusive function of
those two words, as an example.

Mr. Jewell: That's right. What I intend to mean
is that there are certain other factors besides the
particular process described in these photographs
and the testimony appearing below. For instance,
the manner of advertising, the manner of securing
customers, and those sort of things, go to make the
Plaintiff a manufacturer or not a manufacturer.

The Court : I think it is a concrete question ap-
plicable to each taxpayer whether he is a manufac-
turer or simply a repairman.

Mr. Jewell: That is correct. I believe the cases
so hold.

The Court: Proceed.

Mr. Meserve : We next offer, your Honor, Plain-
tiff 's Exhibit 2— is it, Mr. Clerk I

The Clerk: Yes.

Mr. Meserve: Picture 2, with the legend.

The Clerk: Plaintiff's Exhibit 2.

Mr. Meserve: Your Honor, we introduce the 32
separate exhibits that pictorially, with the legend,
set forth the story of the business as nearly as we
can abbreviate it. Wouldn't it be better if we waited
a moment [72] and let the Court acquaint himself
with the whole legend; then the rest of the testi-
mony will be far more intelligible?

The Court: I think so. I have looked over these
casually.

J. Leslie Morris Co., Inc. 11

J. LESLIE MORRIS

called as a witness by and on behalf of the Plain-
tiff, having been first duly sworn, was examined and
testified as follows:

The Clerk: You will state your name to the
Court.

The Witness: J. Leslie Morris.

Direct Examination
By Mr. Meserve:

Q. Mr. Morris, you are an officer of the Plain-
tiff corporation? A. I am.

Q. In what capacity? A. President.

Q. You were the responsible person for its
organization, of the J. Leslie Morris Company?

A. Yes, sir.

Q. When was it incorporated?

A. It was incorporated in 1925.

Q. Was that at the time that you commenced
the business that you are now in ?

A. No, we had been in the business two or three
years prior to that time.

Q. Then you have been in the business of re-
babbitting [73] connecting rods since '22 or '23?

A. About 1923.

Q. And you have been continuously engaged in
that business since that date?

A. Continuously.

Q. Your principal place of business is in this
city? A. Yes.

Q. You have how many other places that you
perform this service?

78 United States of America vs.

(Testimony of J. Leslie Morris.)

A. At the present time we have one other, Chi-
cago. We have branches, but where we perform the
operation. I might say NewT York and Columbus
also do some rebabbitting.

Q. Do you have other branches throughout
around the United States?

A. Affiliated with our company, yes.

Q. Are you familiar, Mr. Morris, with the ex-
hibits that have been introduced in this case, Plain-
tiff's Exhibits 1 to 32, inclusive, the pictures'?

A. Yes.

Q. And are you familiar writh the legend that is
recited under each picture ? A. Yes.

Q. And that fairly, in brief form, correctly re-
cites the method by which connecting rods are
treated through your plant from the time they ar-
rive until the time they are ready to leave, is that
correct? [74] A. Yes.

Q. The pictures were taken as of the present
time ? A. Yes.

Q. What difference, Mr. Morris, is there in the
method of rebabbitting as indicated in the pictures,
Plaintiff's Exhibits 1 to 32, than the method of
rebabbitting used in 1932 to 1935, the period in-
volved in this case? A. They are the same.

Q. The procedure?

A. The process was the same.

Q. Was substantially the same? A. Yes.

Q. Were the devices exhibited in the pictures, by
which each operation was had, substantially the
same ? A. Yes.

/. Leslie Morris Co., Inc. 79

(Testimony of J. Leslie Morris.)

Q. Briefly, Mr. Morris, will you tell us your
method of doing business as distinguished from
the mechanical method — do I make myself clear?

A. A large percentage of the connecting rods
that are brought to us for rebabbitting come from
automotive wholesale jobbers. These jobbers have
in their establishments a stock or shelving of con-_
necting rods that have been either rebabbitted by
ourselves or by other companies performing the
same service to what we term the industry. These
connecting rods are exchanged in order to give im-
mediate service. It is merely to facilitate service.
Now, then, the whole- [75] saler, after making the
exchange, sends the rods to us to be rebabbitted.
That is one phase. Another is that on the later
model rods, the rods that the jobber or ourselves
probably do not have in stock, — those are sent to us
by the wholesalers to be rebabbitted, and in this
instance, we would send the same rods to them
exactly that they send to us, because of the late
model, or their inability to have a service or to
exchange them, or because of the cost, or anything
of that sort ; we rebabbitt the same connecting rods,
and send them back to the customer. Does that
answer you ?

Q. Mr. Morris, you also do business with such
organizations as, for example, the Howard Motor
Company, who are California distributors of the
Buick automobile, do you not ?

A. Yes, we have done that.

80 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. And for J. V. Baldwin Company?

A. Yes.

Q. Who are the distributors for the Chevrolet?

A. Yes; and for Paul Hoffman.

Q. And the Paul Hoffman Company who are
distributors for the Studebaker?

A. That's right.

Q. Just explain to us, Mr. Morris, what occurs
when, we will say, you receive, as an example, 12
connecting rods from the Howard Automobile Com-
pany— Buick connecting rods.

The Court: May I interpose?

Mr. Meserve : Yes. [76]

The Court: Are those connecting rods new, or
have they been used?

The Witness: The connecting rods that are sent
to us, sir?

The Court: Yes.

The Witness: The connecting rods are sent to
us; they are rods that have been removed from an
automobile which is being repaired at that time.

The Court: And are they from automobiles that
have been used for transportation?

The Witness: Yes, in every case; so far as we
know, in every case. Of course, we can instantly
determine a new connecting rod that had never been
babbitted before.

The Court: Mr. Meserve 's question may be pro-
pounded.

/. Leslie Morris Co., Inc. 81

(Testimony of J. Leslie Morris.)

(The question referred to was read by the re-
porter, as follows)

"Q. Just explain to us, Mr. Morris, what
occurs wThen, we will say, you receive, as an
example, 12 connecting rods from the Howard
Automobile Company — Buick connecting
rods.")

The Witness: They go through the process that
is shown in the pictures there, and are returned
to the Howard Company. Now, in the event that the
Howard Company was in a big hurry, and we had
the particular rod already in stock, babbitted, which
came from a similar automobile, similar Buick car,
because they will not interchange — should we have
that and Howard was in a hurry, he would prob-
ably say, ' ' Give me an [77] exchange on that today.
I need this one quickly/ ' But very rarely that we
exchange them.
By Mr. Meserve:

Q. Mr. Morris, start from the genesis of your
business, the beginning of your business of rebab-
bitting used connecting rods — start from the first
part of your business, if that can be done, before
you build up the supply for exchange.

A. For at least two or three years after starting
in our business of rebabbitting connecting rods, we
did not own a single connecting rod. They were
brought to us, we babbitted them and returned them
to the customer that brought them to us.

82 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. The identical rod?

A. The identical rod. We would get them in
groups. We had no exchange service at all at the
beginning of our business. Later that came in as
a part of the business, just to expedite the repair
operation on automobiles.

Q. In other words, Mr. Morris, do I understand
it to be a fact that as your business grew, from its
beginning, where you rebabbitted connecting rods
and returned them to the customer and delivered the
identical rod received, rebabbitted, — as your busi-
ness grew you acquired certain definite brands of
connecting rods, such, as for example, the Chevrolet,
Ford, Studebaker, or the well known makes of auto-
mobile or automobile motors'? [78]

A. We found that was necessary to give the
service that the trade demanded.

Q. By that you mean this, if I can state it cor-
rectly: An employee of J. V. Baldwin comes to you
with two connecting rods for rebabbitting, of a
given size. If he does not want to wait, and you
have them in stock, you hand him two connecting
rods that have been rebabbitted, is that correct, and
take his two which he brought in in exchange, and
charge him for the rebabbitting?

A. That is right, if you will eliminate the phrase
"of a given size," because if it is of a special size
we have to give the same connecting rods back • they
have to be rebabbitted.

Q. I merely intended to use "size" as standard
in size.

J. Leslie Morris Co., Inc. 83

(Testimony of J. Leslie Morris.)

A. The standard size, yes.

Q. When you say " standard size/' you mean
the size of the connecting rods used in motors
strictly used in the industry?

A. Yes, the size that originally came in the car.

The Court : I want to develop that.

The Witness: I am sorry.

The Court: I don't think it's your fault. Let us
take the type of automobile — any type ; say the type
in 1937, for illustration. Have the types of the
construction upon which you work been changed
annually, or at intervals I [79]

A. At intervals.

Q. Let us take any of those cars, so as not to
advertise any of them particularly, any of those
standard makes of automobiles, of 1937 type. Sup-
posing one of those cars was in the repair shop and
it was necessary to secure one of your appliances.
Just howT will that be brought about? Suppose the
automobile needs repair of the part as to which
you fabricate an instrumentality; just explain the
process.

A. The garagemen, or wherever the automobile
is being repaired — the repairer, let us say, of the
automobile, would bring in a connecting rod. It is
a common practice ; that happens dozens of times a
day. The connecting rod that he has received from
the automobile he brings in to our establishment,
and we babbitt it, if we have none we can exchange
for it, or, in many instances, they demand we bab-

84 United States of America vs.

(Testimony of J. Leslie Morris.)
bitt the same one and return it or, if they are in
a hurry, and would like for us to exchange it, and
we have one in our stock that was removed from a
car identical with the one he has brought us, then
we make the exchange.

The Court: So there are some instances where
you supplant the connecting rod that is to be re-
paired with a connecting rod that has been thereto-
fore repaired from another vehicle?

The Witness: From another vehicle of exactly
the same make, the same year, that used the same
connecting rod.

The Court: But an instrumentality that was in
a [80] separate vehicle entirely from the one from
which the connecting rod that was brought in by the
repairman was taken?

The Witness : Yes. We look at it on an exchange
basis.

By Mr. Meserve:

Q. Mr. Morris, rebabbitting, or the babbitt is
the wearing surface of the bearing, isn't it, on a
connecting rod?' A. Yes.

Q. It is the wearing surface? A. Yes.

Q. The same as the sole of your shoe is the wear-
ing surface of your shoe ; that is the bearing of your
foot, is that correct? A. Yes.

Q. And babbitting is replacing the wearing sur-
face of a soft metal back in the bearing of a con-
necting rod, isn't that correct?

J. Leslie Morris Co., Inc. 85

(Testimony of J. Leslie Morris.)

A. That is correct.

Q. And in the early days of the automotive in-
dustry, when automobiles were rare, and were lux-
uries instead of necessities, that function was per-
formed in a great many instances, and in nearly all
instances, in the garage itself, or in the establish-
ment of the car manufacturer, when they had a
burned out bearing! A. Yes.

Q. They rebabbitted it by hand in their own
shop? [81] A. Yes.

Q. When they were repairing the automobile?

A. Yes.

Q. And as the industry grew, it has become a
specialty ; rebabbitting has taken that function away
as a part of the garageman's duty? A. Yes.

Q. For the sake of speed, and a better finished
wearing surface; isn't that correct?

A. That is correct.

Mr. Jewell: If the Court please, I request that
counsel for the Plaintiff not make his questions
quite so leading.

Mr. Meserve: I don't intend to lead the witness,
your Honor, in anything that I cannot establish by
an indirect question, except and only for the pur-
pose of brevity and clearness.

Q. Mr. Morris, so that we may have before us
a physical look at a connecting rod, do you have
one in the courtroom here? A. Yes.

Q. Can you produce it for us?

A. Yes, sir.

86 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. You have here a box, Mr. Morris, of an
assembly of several connecting rods. Will you assist
us by selecting from them any one connecting rod,
and describe it for us?

A. The connecting rod I have in my hand is a
rebabbitted [82] rod for a Packard automobile.
This is the identical rod as removed from the
Packard, that probably the exchange would be for.
This was removed because the babbitt was worn.
When this car is repaired, they bring it over to
us, and we either rebabbitt the same one or make
an exchange.

Q. That is, if you have a particular rod of the
same size in your establishment?

A. Yes, the same diameter, width, and all; if it
happened to be the same connecting rod, and also
a definite distance from the crank shaft up to the
wrist pin. In other words, we can only use a con-
necting rod made by the car manufacturer. These
are both connecting rods made by Packard. It is
just a case of which one was presented to us,
whether we exchanged it or whether we put it
through the shop and babbitted it. The result is the
same.

The Court: This internal annular member, that
is not cast with the shaft itself ; it is separate ?

The Witness : It is a separate operation, sir, even
at the factory.

The Court: Supposing the ring, — I will call it
the ring, — the annular metallic member itself

J. Leslie Morris Co., Inc. 87

(Testimony of J. Leslie Morris.)

The Witness: The shaft?

The Court: I am speaking of this member as
distinguished from the outer frame, the inside ring,
the metallic-like annular member, do you under-
stand?

The Witness: Yes. [83]

The Court: I don't know whether I explained
it in trade parlance.

The Witness: You do. Might I say that this is
not separate. This is all machined; all a part of
the same forging. That is just the action of the
cutting edge around there. This is not a bearing.
That is inserted.

The Court: That answers the question.

The Witness: Another rod would not show it
that way.

Mr. Meserve : Your Honor, may I be so rude as
to interrupt, and have these two identified before
we go to two more, so that we may know what we
are talking about?

The Court : Yes, these may be identified.

Mr. Meserve: We will identify the rod without
the babbitt as Plaintiff's Exhibit next in order.

The Court: Of the Packard.

The Clerk: Plaintiff's Exhibit 33.

(The rod referred to was received in evidence
and marked "Plaintiff's Exhibit No. 33.")

The Witness : They are both Packard connecting
rods.

88 United States of America vs.

(Testimony of J. Leslie Morris.)

Mr. Meserve: And the rod that has been bab-
bitted?

The Witness : That was a babbitted flange

The Court: Just wait a minute until we get it
identified.

The Clerk: Plaintiff's Exhibit 34.

(The rod referred to was received in evidence
and marked "Plaintiff's Exhibit No. 34.") [84]

The Court: Now, Mr. Meserve, you have these
two rods here, and we will mark these now, Mr.
Hansen.

Mr. Meserve : Mark the one that is not babbitted
as the next exhibit in order.

The Court: These are the Buick construction?

The Witness: Exactly.

The Clerk: Plaintiff's Exhibits 35 and 36.

(The rods referred to were received in evi-
dence and marked " Plaintiff's Exhibits Nos. 35
and 36," respectively.)

The Court: Do you desire to explain something
about the construction of this that will clarify what
is in the Court's mind?

The Witness: Yes.

The Court: Will you do so?

The Witness: The Buick, this

The Court: Let us avoid the use of the word
"this," and "those," and refer to them here by
the exhibit number, if we can. Each one of these
instruments will now be marked. You will find it on

J. Leslie Morris Co., Inc. 89

(Testimony of J. Leslie Morris.)
the tag, Mr. Morris, if you will refer to those re-
spectively.

The Witness: Exhibit 35 represents a connecting
rod, and it is probably removed from the vehicle.
The babbitt, you will observe, is damaged. That con-
necting rod would have given further service, and
probably was removed because of piston ring trou-
ble. It was probably pumping oil, and the [85]
mechanic gets into the automobile to correct the oil
pumping, which is a very common act of the garage
service, and in opening up this, he finds it is cracked.
Exhibit 35 represents a connecting rod which would
probably be an exchange. As a matter of fact, this
one was offered to us in exchange for Exhibit 36,
which is the identical connecting rod, both carrying
the name of the manufacturer.

By Mr. Meserve :

Q. Mr. Morris, may I interrupt just a minute so
that we can get the story seriatim in our minds?

A. Yes; probably I am not making it clear.

Q. That is all right. Will you just explain, so
we will all have it clear, the function of the con-
necting rod, first.

A. The connecting rod connects the piston which
carries the energy from the cylinder when the
charge of gas and air are exploded in the cylinder.
The connecting rod delivers the energy to the crank
shaft.

Q. The lower end of the shaft, that is babbitted,
is the circular part that is attached to the crank
shaft of the motor? A. Yes.

90 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. And the upper end, which you are holding
in your hand, Plaintiff's Exhibit 36, is the part that
attaches onto the piston? A. Yes. [86]

Q. And is known as the wrist pint

A. No, it is by means of the wrist pin that the
piston is attached to the connecting rod.

The Court: I believe you stated that 35 would
probably be exchanged?

The Witness: Yes.

The Court: Why would that be true?

The Witness: Because of the break in the bab-
bitt at the point near the edge.

The Court: Why would it not be repaired and
the identical instrument sent back to the customer?

The Witness: Purely from a matter of service
and speed. It would take probably three-quarters of
an hour to babbitt the same connecting rod.

The Court: But it could be rebabbitted and
work efficiently in the motor vehicle from wThich it
was originally taken?

The Witness : Yes, because in many instances we
do rebabbitt the same rod and it goes back and
functions efficiently hi the vehicle from which it was
removed.

Mr. Meserve: I perhaps think, your Honor, that
we haven't got the matter entirely clear, either for
the record or for the Court.

Q. The connecting rods that are brought in to
you for babbitting, Mr. Morris, are not in any way
unusable for the same motor from which they have

J. Leslie Morris Co., Inc. 91

(Testimony of J. Leslie Morris.)

been removed, or an identical [87] motor of the

same type, are they? A. No.

Q. Except and only for reservicing the wearing
portion of the bearing, which is babbitted?

A. Yes.

Q. And that is one of the common failures in
automotive operation? A. Yes.

Mr. Jewell: If the Court please, just for the
purpose of keeping the record, because the Govern-
ment is interested in these types of cases, not so
much in this particular case, except as it represents
a type of case all over the country, and with the
type of examination which is leading, Mr. Meserve
has induced the witness to state two things which
are exactly contrary to each other.

Mr. Meserve: I have no intention of making
contrary statements.

Mr. Jewell: I know you haven't, but for the
purpose of clearing up the record, I think he should
confine his examination to a little bit more direct
questioning, because the witness answered yes to a
question that the rods were in no way unusable, and
then he added the qualifying phrase, except insofar
as the babbitt had been melted, or was non-usable.
I think it will clutter up the record, unless the ex-
amination is kept in more direct questions.

The Court: I think leading questions should be
avoided, [88] especially with an informed witness.
I take it the witness understands the process thor-
oughly.

92 United States of America vs.

(Testimony of J. Leslie Morris.)

Mr. Meserve : There is no doubt about that, your
Honor.

The Court: He probably understands it better
than counsel or the Court; and if the questions are
direct, he will impart to the Court his knowledge,
without any leading questions.

Mr. Meserve : The point I had in mind, I thought
it was indicated just at the close of your Honor's
last remarks — the impression was left with me that
the Court thought these connecting rods that were
brought in were in some way damaged, and that
only occasionally one could be repaired and sent
back.

The Court: It is rather an unsafe thing for
counsel to exercise the powers of divination as to
what the Court thinks.

By Mr. Meserve :

Q. Mr. Morris, you have here, as I understand
it, a series of connecting rods exemplifying the
process of rebabbitting the same type of rod!

A. Yes.

Q. Will you select those, please?

A. I will be glad to.

Q. You just put them upon the stand, Mr. Mor-
ris, and hand me the first rod of your selection.

A. This is a Chevrolet connecting rod. I had the
boys take two or three of them together, just as
they came to us [89] for rebabbitting. The connect-
ing rod, as it comes to us to be rebabbitted — this is
a Chevrolet of 1937 type ; Chevrolet-6.

J. Leslie Morris Co., Inc. 93

(Testimony of J. Leslie Morris.)

Q. Are the three that you are discussing the
same ?

A. All the same; just removed from a Chevrolet
1937 automobile.

Q. Just select one of those so that we can have
it identified.

The Clerk: Plaintiff's Exhibit No. 37.

(The rod referred to was received in evidence
and marked "Plaintiff's Exhibit No. 37.")

By Mr. Meserve :

Q. Plaintiff's Exhibit No. 37, Mr. Morris, which
you have identified is what, again, for the record?

A. It represents the connecting rod as it is re-
ceived from a 1937 automobile, Chevrolet.

Q. Do you have a way, Mr. Morris, of identify-
ing that type or make of automobile from an exam-
ination of the rod itself?

A. Yes, they all carry a numbering on the
shank of the rod.

Q. Do they carry the manufacturer's name as
an identification mark?

A. In many instances they do. In some instances
they do not.

Q. Do they, on a Chevrolet? [90]

A. Yes, they do.

Q. Is it on the rod in question, the one which
you just introduced?

A. Frequently, in Chevrolet parts, as well as
others of that group, you find generally G. M., mean-

94 United States of America vs.

(Testimony of J. Leslie Morris.)

ing General Motors. This one here — that one seems

to have only the number on it.

Q. What is the next rod in the series that you
have before you, and the next process?

A. I brought this in so that we could follow the
legend that is on the pictures, and show each oper-
ation as it took place.

Q. That is correct.

A. The next operation, after melting the babbitt
out of the connecting rod, the old babbitt that is left
in there, is to tin the connecting rod. That has been
tinned, and is ready to receive the charge of babbitt
we are going to pour in there, as described by our
pictures. There are different stages.

Q. Is this connecting rod you have handed me
still a Chevrolet?

A. A Chevrolet, 1937 car.

The Clerk: Plaintiff's Exhibit 38.

(The rod referred to was received in evidence
and marked " Plaintiff's Exhibit No. 38,")

The Witness: As described in the legend, the
next [91] operation is to insert the steel separator
shims, and then cast the babbitt into the connecting
rod. The separator shims are placed in there so that
the connecting rod and the cap will be equally sep-
arated in two pieces — will be equally open as these
two separator shims are removed.

Q. The rod which you have just described is a
rod for use in a Chevrolet ? A. Yes, 1937.

Q. The next step in the process

J. Leslie Morris Co., Inc. 95

(Testimony of J. Leslie Morris.)
The Clerk: Plaintiff's Exhibit No. 39.

(The rod referred to was received in evidence
and marked "Plaintiff's Exhibit No. 39.")

The Court: Let me interrupt just a moment. I
observe on these tags, as you refer to them, certain
legends and figure at the head of them. Does that
correspond to the photographs that have been intro-
duced in evidence ?

The Witness: No, sir, I am afraid it does not.
I can readily put numbers on them though.

The Court : If you did it would facilitate the
examination, and save our time. If that hasn't been
done, you may go through it.

The Witness: The separator shim is now re-
moved ; the connecting rod has carefully been bolted
together, and it is now ready to be machined. We
are now ready to pour the babbitt in the connecting
rod.

Q. And your last statement refers to the con-
necting [92] rod you have handed me?1

A. Chevrolet 1937, yes.

Mr. Meserve: I offer that as Plaintiff's Exhibit.

The Clerk: 40.

(The rod referred to was received in evidence
and marked " Plaintiff's Exhibit No. 40.")

Mr. Meserve : May I interrupt you, Mr. Morris ?
And I think, with the Court's permission, it would
be better to put the rod in first, and then describe
it by Exhibit number, if I may do that.

96 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. Now, Mr. Morris, Plaintiff's Exhibit 41, if
you will describe it.

A. Represents the next step in the process of
rebabbitting. We have bored out the babbitt and
faced the edges of the babbitt so that the rod is the
proper width. It is a steel flange. We do no facing
with the rod at all, but we do face the babbitt;
chamfer the inside. Plaintiff's Exhibit 42 is the
final step in babbitting the Chevrolet 1937 connect-
ing rod. Oil grooves have been cut, and the connect-
ing rod is ready to be installed in the automobile
from which it was removed, or any other Chevrolet
of the same year and make.

(The rods referred to were received in evi-
dence and marked " Plaintiff's Exhibits Nos. 41
and 42," respectively.)

Q. From the last exhibits that have been intro-
duced, and that you have testified concerning, Mr.
Morris, can you [93] select one as an example upon
which you can show us the identification of the
original producer of the rod, or source of its manu-
facture %

A. Practically every one of these

Q. From one exhibit that is in evidence.

A. Yes, this is an exhibit. This is a Packard
number. That is generally accepted in all books, and
that is a product of the Packard Motor Company.
It was either made by or for them, because they all
carry that same number on the shank of the rod.
This rod is a Buick and "Buick" is very definitely

J. Leslie Morris Co., Inc. 97

(Testimony of J. Leslie Morris.)
marked on there, on both of the rods ; that is, Plain-
tiff's Exhibits 36 and 35.

Q. And next to the Buick name!

A. The Buick trademark.

Q. Is there anything on the Chevrolet rods that
is similar!1

A. The Chevrolet rod has the characteristic
number that is always there, and it always has
"G-. M.," indicating General Motors. I have one
Chevrolet here that carries another number: C. B.
463.

Q. Does that indicate anything to you?

A. Yes, it does. That is the manufacturer of the
connecting rod.

Q. What manufacturer, or do you know?

A. I do know. Clawson and Bals, of Chicago.

Q. Who manufacture connecting rods for auto-
mobiles? [94]

A. Steel forging; yes; the steel connecting rod
is forged.

Q. Mr. Morris, in referring to the identification
marks that you have just testified to, on the ex-
hibit before you, as to the Packard and others, how
are they placed on the shank of that connecting
rod?

A. That represents an operation in a drop forg-
ing plant. The connecting rods are forged from a
billet of steel. Two dies — and by die, I mean a piece
of hard steel that is recessed to form half of this
we see here as the connecting rod, and the other

98 United States of America vs.

(Testimony of J. Leslie Morris.)
side is recessed to form the other half — those two
are actuated by a press and hammer. We speak of
that as a drop hammer, because it drops; the same
operation exactly as a blacksmith does, except they
do it with dies in the industry; and that forms the
billet into the connecting rod. It is very heavy
equipment, and I don't know but one in Los Angeles
that is capable of doing it. It is just scattered over
the country — the few people that can drop forge
in dies the connecting rods used in automobiles.

Q. The drop forging does not in itself make
the connecting rod?

A. No, that makes what we call the blank, and
from that it is machined. It is placed in heav}^
machinery that is necessary to cut this type of steel,
because it is very tough steel, and ordinary equip-
ment will not handle it. [95]

Q. Then do I understand it to be correct, Mr.
Morris, that the numbering and the identification
mark of the car manufacturer is in the die in the
drop forged piece?

A. Yes, and you then get, as a result, the raised
figure on the shank of the connecting rod, because
it is a recessed figure on the die that forms it. That
gives the result in a raised figure on the shank of
the rod. I might add that this knowledge of mine is
simply in observing operations. I have never in my
life been identified with any drop forge company.

Q. Now, at any time during the operation of
your business, Mr. Morris, from the beginning to

J. Leslie Morris Co., Inc. 99

(Testimony of J. Leslie Morris.)

date, have you ever removed from any connecting

rod its manufacturer's identification mark?

A. Never.

Q. Would there be any way to remove, we will
say, for example, the Packard identification marks
on Exhibit 33, and replace them with any similar
type of identification marks, raised ?

A. No, that would be impossible.

Q. Of your own, or any other person's selection?

A. So far as I know, that would be impossible.

Q. That must be done by drop forging with the
die in which the billet is cut, from which the rod
is ultimately [96] machined?

A. That is correct.

Q. Now at any time, Mr. Morris, in the opera-
tion of your business, from its beginning to date,
have you ever put any identification mark on a rod
of your own? By that I mean of your own com-
pany? A. A steel identification?

Q. An identification mark on a connecting rod of
your own?

A. No. I might say we put occasionally, in the
days gone by — I remember a few years ago, prob-
ably the late '20's, we had a rubber stamp stamped
"Moroloy"; it was nothing permanent. The very
moment it was installed the oil would erase it.

Q. "Moroloy" is a trade name you have for your
babbitting process? A. That's right.

Q. I am asking you if you have ever removed
from any connecting rod that was in your plant its

100 United States of America vs.

(Testimony of J. Leslie Morris.)
identification marks or numbers, and replaced there-
on an identification mark of your own, as being a
connecting rod of your own manufacture.

A. Never.

Q. If a person desired to remove the numbers
or the name, we will say, "Buick" from the ones
you have in the exhibit, or "G. M.," and certain
numerals, they could be [97] machined off there?

A. If they wanted to do it, the simplest way
would be to grind them off with a circular wheel.

Q. And it could not be replaced in raised num-
erals or letters.

A. Not to any knowledge of mine could it be
done.

Q. What would be the only way a person could
put back on a plain rod any identification mark?

A. With steel stencils.

Q. It would cut into the rod instead?

A. It would cut into the rod instead.

Q. State, Mr. Morris, whether or not each con-
necting rod that comes into your plant, retains the
original identification marks that were on it,

A. All connecting rods that come into our plant
retain the original identification mark that was
on it. The caps and the shank portion of the con-
necting rod are kept together. One cap is never
placed on another connecting rod.

Q. Just explain to us what you mean by "cap"
and "shank," — those portions of the connecting rod.

A. That is detached to allow it to be placed

J. Leslie Morris Co., Inc. 101

(Testimony of J. Leslie Morris.)
around the crank shaft. What we speak of as the
cap — I am describing Plaintiff's Exhibit 33 — this
cap is machined by the Packard Automobile Com-
pany, or somebody whom they employ to do it, and
we must keep the cap and rod at all [98] times
together. This cap must be put back on the same
connecting rod, and we rebabbitt it; if I make my-
self clear.

Q. Referring to the last statement, Mr. Morris,
as it relates to the exhibit of the Chevrolet rods,
you use the same cap on the identical rod that it
came on? A. We do.

The Court: Aren't these shanks and caps inter-
changeable ?

The Witness : No, sir, they are not machined that
well.

The Court: There is a variance between all of
the different manufacturers?

The Witness: Yes.

By Mr. Meserve :

Q. And there would be a variance between all
of the connecting rods of the same class of the same
manufacturer !

A. There would be a variance in the same con-
necting rods in the same automobiles, if I make my-
self clear; that is, as to width, and all, because they
have been machined together when they were made,
and the bolt holes are not always directly in the cen-
ter of these two widths, so if T take a cap from this
connecting rod and put it on this, you wTill very

102 United States of America vs.

(Testimony of J. Leslie Morris.)
frequently find an uneven edge, which interferes
with your rebabbitting. That is the purpose of keep-
ing the cap portion and the shank portion of the
connecting rod [99] together.

Q. That would be true of the six cranks taken
out of the same cylinder motor ?

A. Six comiecting rods you mean to say ?

Q. That is what I mean.

A. Taken out of the same motor, yes.

Q. Mr. Morris, I would like to have you ex-
plain to us the method by which you do business
with your customers. I tried to make that clear at
the beginning, and we were led off into this mechan-
ical operation.

A. The customer consists, as I said in the leg-
end, of three types : The car manufacturer — the car
agency, I should say; the car agency, the industrial
account, and the automotive wholesale merchant.
The automotive wholesale merchants probably give
us 85 per cent of the rebabbitting business that we
enjoy.

Q. Can you give us an example of an automotive
wholesale merchant by name %

A. Yes, Chanslor & Lyon Company — Chanslor
& Lyon Stores, Inc., I believe is the exact title.
Colyear Motor Sales Co.; and one that is known
by all of us, the Western Auto Supply Company.

Q. Give us the process of your business relation
with any one of those customers.

A. Their truck will come up to our door and lay

J. Leslie Morris Co., Inc. 103

(Testimony of J. Leslie Morris.)

off a package of connecting rods for rebabbitting.

Those rods [100] are checked in.

Q. You don't need to describe that,

A. That is shown in the legend. I was going to
say the connecting rods are rebabbitted and returned
to the customer.

Q. And wThat charge is made ?

A. For the rebabbitting charge only.

Q. You referred in the early part of your testi-
mony, Mr. Morris, to an exchange. I want you to
clarify that. Explain what you mean when you make
an exchange with your customer.

A. The connecting rod is brought to us for re-
babbitting. If the customer is in a hurry and wants
it quickly, and we happen to have a connecting rod
from identically the same type of automobile — by
type, I mean make and model and year — then, in-
stead of delaying him for the time necessary to bab-
bitt his own connecting rod, that he brought
to us, we hand him an exchange connecting
rod, which is exactly the same thing except
that we have babbitted it previously, and
already have it on hand. The charge is
exactly the same for rebabbitting it or exchanging
it. We make no additional charge for the service of
exchanging the rod. If he wants his own connecting
rod babbitted and given back to him, or if he wants
to accept the exchange which we have to offer, the
charge is exactly the same.

Q. How do you acquire, Mr. Morris, the connect-

104 United States of America vs.

(Testimony of J. Leslie Morris.)

ing [101] rods that you have rebabbitted, that you

have waiting to exchange ?

A. We bought the earlier ones. Of course, we
have bought no earlier ones now for many years;
we bought them from established agencies. They
secured the earlier type of rods from car wrecking
establishments, when they had been removed from
the automobile. They get them together and select
them, and we buy them at so much apiece. The con-
necting rod that we are always more in need of than
those obtainable is the late type of connecting rod,
as for instance, as we sit here, the 1939 or the 1940
Chevrolet connecting rods are very much in demand.
We find it necessary to go to the J. V. Baldwin
Company and buy 100 or 200 connecting rods for
our stock. We not only have to stock ourselves, but
we have to stock the jobber who is depending upon
us, or the automotive merchant who is depending
upon us to service him in the connecting rod re-
babbitting exchange business.

Q. Then you buy these new from J. V. Baldwin,
as a dealer?

A. It comes to us in the original package, in the
case of General Motors, from J. V. Baldwin. Occa-
sionally we buy from Felix, another Chevrolet deal-
er, and they come in original boxes.

Q. You stock them on your shelves ?

A. Yes. [102]

Q. That is a babbitted connecting rod f

A. We get it babbitted by the factory ; it is a com-
plete connecting rod.

J. Leslie Morris Co., Inc. 105

(Testimony of J. Leslie Morris.)

Q. You take that new Chevrolet connecting rod,
and do what with it, when one of your customers
comes in with a used one ?

A. We exchange it, sir, with our regular charge
for rebabbitting that connecting rod, just the same
as if we rebabbitted it ourselves.

Q. And the one that is exchanged, the one that
is brought in, you rebabbitt it and put that in stock ?

A. Yes, we put that in stock.

Q. And repeat the same operation on the next
rod that comes in of the same type ?

A. Yes. May I interject a thought? We repeat
it over and over to the extent that we have never
purchased connecting rods to be rebabbitted in vol-
ume. They won't even represent five per cent of
our monthly sales of rebabbitting.

The Court: Read that.

(The record referred to was read by the reporter,
as follows:)

"Q. And repeat the same operation on the next
rod that comes in of the same type ?

"A. Yes. May I interject a thought? We repeat
it over and over to the extent that we have never
purchased connect- [103] ing rods to be rebabbitted
in volume. They won't even represent five per cent
of our monthly sales of rebabbitting.")

The Witness: I think I had better clarify that.
The purchase of connecting rods for rebabbitting
represents less than five per cent of our rebabbitt
service to wholesalers.

106 United States of America vs.

(Testimony of J. Leslie Morris.)

The Court: And the other ninety-five per cent is
largely exchange?

The Witness: That is it. They ship rods to us,
and we ship them back.

The Court: That is a little beyond what I had
in mind. How much of that ninety-five per cent is
included in the delivery to your customers of a new
rod that you have obtained from someone who deals
in new rods %

The Witness : Five per cent ; just about five per
cent of our monthly sales.

The Court : The other ninety-five per cent would
consist of taking the used and damaged rod and
processing it, as you have described, and deliver-
ing that identical rod so processed back to your
customer ?

The Witness: No, sir; not the identical rod; a
rod exactly like it.

The Court: That is what I am talking about.

The Witness: Yes. Not the identical rod, but a
rod exactly like it. [104]

The Court: How much of the approximately
ninety-five per cent of your volume is brought about
by delivering to the customer the identical rod which
you got from him, after having processed it in your
establishment?

The Witness: I would say — of course, it will
vary from time to time, but year in and year out
I would say it would average possibly 15 or 20
per cent.

The Court: Then at 60 or 65 per cent — let us

J. Leslie Morris Co., Inc. 107

(Testimony of J. Leslie Morris.)
put it in the larger figures— would consist of the
delivery to your customer of a rod that had either
been processed in your establishment, or a new
rod that had been obtained by you from one of these
dealers !

The Witness : That is exactly correct, yes, sir.
By Mr. Meserve :

Q. Mr. Morris, when a rod is brought in to your
establishment from one of your customers that is
bent or broken, in any part of it, do you use it?

A. We cannot accept it for rebabbitting. Our
catalog and our price sheet both stipulate that
cracked, bent, or broken connecting rods cannot be
accepted for exchange, and we return them to the
sender.

Q. Then to that extent you do not in your busi-
ness use damaged connecting rods ?

A. We cannot.

Q. The connecting rod, as a connecting rod, must-
be in perfect condition, except and only as to the
wearing, bearing [105] surface which you babbitt?

A. The babbitt liner which goes in between the
crankshaft and the connecting rod, yes.

Q. Any other deviation than that is rejected?

A. It makes it unfit for further service, yes.

Q. Either for rebabbitting that rod or for the
replacement of one of like kind ?

A. We send it back to the customer that sent it
to us, because it is unfit for further service.

Q. Then in your place of business, Mr. Mor-
ris, you do nothing in any way to repair a connect-

108 United States of America vs.

£ Testimony of J. Leslie Morris.)

ing rod other than the babbitt in the lower end of

the shank? A. That is correct.

Q. You don't attempt to align them or straighten
them?

A. The rod is straightened in the process of bor-
ing it. We bore it in parallel with the pin. The rod
is held on the wrist pin. That simulates the wrist
pin, when it is in service, and the tool that bores
through this, as shown in the legend, is bored par-
allel to this hole. If there was a slight bend in the
connecting rod, it would still be parallel.

Q. I don't think you followed my question. Look
at Plaintiff's Exhibit 36. Had that rod come into
your plant with a bend in the shank

A. We couldn't use it. [106]

Q. Let me finish, — would you straighten it in
your plant, — the bend in the shank? A. No.

Q. Or repair any other similar type of damage?

A. No.

The Court: The connecting rod — to simplify it
— is made up of two units ; the shank, and what do
you call the other?

The Witness : The cap.

The Court : Your work is exclusively on the cap
part of that device ?

The Witness: No sir, we babbitt this part, be-
tween the shank and the cap.

The Court: You include that shank, do you?

The Witness: This is separate at this point, and
these two bolts hold them together. This cap would

J. Leslie Morris Co., Inc. 109

(Testimony of J. Leslie Morris.)

be detached. I have one here. You see the break

line?

The Court: Yes.

The Witness: We babbitt both sides, of course.

By Mr. Meserve :

Q. Mr. Morris, it is required to babbitt the en-
tire circular inside portion of the crankshaft, the
upper part of the shank and cap, in order to make
a complete bearing surface ?

A. The connecting rod?

Q. The connecting rod, I mean. [107]

A. Yes, it is necessary to babbitt the entire cir-
cumference of the bearing.

The Court: If the shaft were bent, why wouldn't
you straighten it, true up the device ?

The Witness : Because a connecting rod is a very
important part of the engine, and failure of the
connecting rod means not just the replacement of
that connecting rod, but invariably it means that
the entire engine has to be replaced, because in
breaking, they almost always are thrown to the side
of the engine. We have instances of that at all
times. So we never attempt to correct an imperfec-
tion in the connecting rod itself for fear of the re-
sponsibilities that it entails with the customer.

The Court: Supposing there was a torque, or
strain, or a stress on the shank of the rod, and the
result was that the rod was bent, not broken; there
was no fracture in the metal, but there was a bend-
ing of the metal, and only in a small degree, but in

110 United States of America vs.

(Testimony of J. Leslie Morris.)
a large degree mechanically and from an engineer-
ing standpoint, would you service that part of the
rod?

The Witness: I might say, sir, that that would
be corrected when the piston was attached to the
rod. There is a practice of aligning the connecting
rod and piston just before they are installed into
the cylinder. We don't have this device; that is in
the garage. In other words, the service that you
mention is a part of the garageman's [108] service
in installing the connecting rod in the engine, rather
•than in our place, where we are babbitting it. To
correct that slight bend that you speak of, that is
a service of the garageman.

We have in each garage a fixture known as an
aligning jig, and that aligning jig is employed after
the piston has been attached to this end of the con-
necting rod, and I think the slight irregularity that
you refer to would be corrected at that time with
just an ordinary lever bending it, that goes with
the aligning jig; but we are not called upon to do
it ourselves at all.
By Mr. Meserve :

Q. Mr. Morris, if in going through the operation
of rebabbitting, in your plant, a connecting rod was
discovered to be out of alignment, as indicated by
the Court in a previous question, wrould you proceed
to then rebabbitt it, if it was bent ?

A. No, our catalog states definitely that we do
not, and will not.

Q. You do not

J. Leslie Morris Co., Inc. Ill

(Testimony of J. Leslie Morris.)

A. We do not rebabbitt a bent rod, no, sir.

Q. Or one that is out of alignment, as you see it %

A. Yes, as we observe it from the eye, because
we do not check for alignment.

Q. What, Mr. Morris, is your method with the
customer, take, for example, who is outside of the
city of [109] Los Angeles, at Fresno, who writes
and asks you to ship him so many of a specific type
of connecting rod that you have rebabbitted and
have on your shelf? What is your method?

A. The method of shipping those — we ship the
connecting rod, and make a charge for rebabbitting.

Q. What other charge, if any, do you make ?

A. We require a deposit, which is carried as a
deposit charge, which will be refunded when the
forging, which we haven't charged him for, is re-
turned to us in exchange.

Q. You require a deposit on what %

A. On the connecting rod. We charge merely for
the bearing when we ship it to him, and we send
him the connecting rod itself ; therefore he makes a
deposit, which stands on our books until he has re-
turned the connecting rod that he has received from
the automobile, to us. In other words, if he comes
to our counter and says, "Let me have a 493 con-
necting rod," which is our Exhibit 36, in the par-
lance of our stockbook and our handling of the con-
necting rod, and he brings none with him at all, we
charge him a deposit until the exchange connecting
rod which is acceptable to us for rebabbitting is

112 United States of America vs.

(Testimony of J. Leslie Morris.)

brought to us. Now, on our Fresno question

Q. Let me stop you a minute. When you say you
charge him a deposit, you charge him a deposit for
the price of the rod, and make him a separate
charge for the rebabbitting 1 [110]

A. That's right; for the sake of speeding up,
we frequently combine the twTo, but in that instance
we use the word "complete," which indicates he has
a deposit on the connecting rod itself.

Q. Then what occurs if you later receive from
this customer a rod of a similar type ?

A. We immediately issue him a credit for the
full amount of the deposit.

Q. The full amount of the deposit or the cost of
the rod, is that it?

A. Yes. We showT a deposit charge opposite each
rebabbitting quotation.

Q. What does that deposit charge represent?

A. It represents the value of the connecting rod
itself, as we determine it on the basis of supply and
demand at the time. In going through our book you
will find a great many of them with the valuation
of 10 cents for the reason that they are no longer
desirable ; they are obsolete. They were used in cars
that have long since passed from the highway, and
in many instances we suggest to them that we would
just as soon sell them the rebabbitting, connecting
rod and all, instead of bothering to send the old con-
necting rod back, because it is for an obsolete car
which is no longer used on the highway.

J. Leslie Morris Co., Inc. 113

(Testimony of J. Leslie Morris.)

Q. Then the amount of deposit is dependent
upon the current demand for that type of connect-
ing rod? [Ill]

A. Yes. On the other hand, if it was a very late
connecting rod, we would probably charge as much
as $12.00. In the late Packard, like I have in my
hand, it is unobtainable except from the Packard
place, and you pay $12.00 when you go to buy it.
So they range from ten cents to that.

Q. That is the current unit charge for the con-
necting rod?

A. Yes, what we can get the agent to duplicate
the rod for in the event the customer did not send
it back.

The Court: You referred to obsolete rods that
come to the establishment. What do you mean by
to " obsolete rod"?

The Witness: I mean a rod that was built by
the manufacturer, as an instance, in an automobile
that has now long since been consigned to the scrap
heap. For instance, let me cite for example possibly
a 1913 Jewett, or possibly, if your memory goes
back so far, to a Crit, or Corbin, and some of the
cars that we knew at the beginning of the automo-
bile industry, that have no value now because they
will fit no other automobile except the one it was
intended for. That is why we speak of it as obsolete.

The Court: What do you do with that obsolete
rod that you took in the course of trade ?

114 United States of America vs.

(Testimony of J. Leslie Morris.)

The Witness: Unless we had one, and we don't
usually have these obsolete ones ; we have long since
sold them to the junkman, and he has hauled them
away; there is no purpose of babbitting them any
more; the opportunity of selling them [112] is too
remote.

Q. Then you do not sell any of those rods that
you have characterized as obsolete ?

A. No, sir, we have no market for them.

Q. I can't understand why a charge is made,
then, on account of an obsolete rod.

A. I will explain that. The wholesaler we send
rods to sometimes carries a rod of that type in
stock. You understand that 10 cents was not ar-
rived at automatically — just instantaneously; the 10
cents, through the years, has probably decreased in
value from $1.50, maybe two or three dollars ; maybe
five dollars. Fifteen years ago say a rod that is now
carried for ten cents was probably worth five or six
dollars. The wholesaler, when he has these in stock,
we, of course, ask him to send them in before they
have lost their value, because in the business we are
in, we have to protect the wholesale merchant a
great deal, and that is why we carry the valuation
down rather than write it off entirely. We feel it
is his obligation if he fails to send it in at any time
during its downward course, and he retains it in his
stock. Do I make myself clear*?

Q. You make yourself clear, but I don't under-
stand just why you take a device that is obsolete

J . Leslie Morris Co., Inc. 115

(Testimony of J. Leslie Morris.)

in the conduct of your reconditioning business. It

depends upon what you mean by obsolete.

A. I mean by that we don't babbitt it and put it
back [113] in stock.

Q. Would you junk it ?

A. Yes, we would probably throw it out the win-
dow, so generally it will ultimately be sold as junk.
It is not worth rebabbitting again. We have prob-
ably two or three we have been caught with, and
would be glad to get rid of it because we are unable
to sell the babbitting surface on it any longer.

Q. These devices would be infinitesimal, the ob-
solete devices that you take in in your business?

A. I don't exactly like the phrase that we have
taken them in. We take them in only when we get
an opportunity to sell one which we had in stock.

Q. By " taken in," I just meant to emphasize
what you have stated in several other words.

A. Yes.

Q. Did I do it correctly ?

A. You did it correctly, yes. I understand.

Q. You spoke earlier in your testimony about
putting a rubber stamp on the inside of this babbitt
that would come off when the lubrication occurred.
What was that; a patented process you have?

A. No, just a trade name. We did not put it on
the babbitt, but stamped it on the shank, and we
only did it for, I imagine, 60 days. We found it did
no good; it did not stay on the rod at all. It was a
pure experiment, I understood [114] Mr. Meserve's
question to refer to the practice way back in the

116 United States of America vs.

(Testimony of J. Leslie Morris.)
'20 's which really indicated it was babbitted by us.
It was a rubber stamp, with red ink on it, that in-
stantly came off, washed off, and there was no pur-
pose of using it further.

Q. During the applicable period in this case —
you know what I mean ? A. Yes.

Q. — did you put a mark of any kind upon the
instrument that you processed ?

A. We never put on any kind.

Q. You spoke about some catalog. You had some
prospectus of your activity? A. Yes.

Q. You have that here in court? A. Yes.

(Thereupon, at 12:00 o'clock noon, a recess was
taken until 2:00 o'clock p. m. of the same date.)

[115]

Los Angeles, California

Tuesday, May 28, 1940

2:00 o'Clock P. M.

J. LESLIE MOREIS

the witness on the stand at the time of recess, having
been previously duly sworn, resumed the stand and
further testified as follows :

Direct Examination
(Continued)
By Mr. Meserve :

Q. Mr. Morris, you have called to my attention
since the adjournment, corrections which you desire

J. Leslie Morris Co., Inc. 117

(Testimony of J. Leslie Morris.)
to make in your testimony, your answers in re-
sponse to questions this morning; first, as concern-
ing your business ; will you state what that was that
you wanted?

A. I was asked a question, I believe, as to where
we have branches. I was a little confused. This is
my first time on the witness stand. I said New York,
Columbus and Chicago. I forgot entirely Seattle
and Portland. I would like to supply Seattle and
Portland in addition to that.

Q. You wanted to correct your testimony, did
you, as to what else you did to the connecting rod,
other than rebabbitt it ?

A. You asked me the question: " Eebabbitting is
the only thing that you do to the connecting rod?"
And I said, "Yes." As a matter of fact, the legend
and the pictures show [116] that we push a new
bushing into the upper end of the connecting rod;
so I want to correct that.

Q. You are pointing to the small end of the
connecting rod, Exhibit 34 ?

A. On Exhibit 34.

Q. And you had a third note ?

A. The Court asked me about straightening or
aligning the connecting rod, and he asked me: "Do
you?" and I took it in the present tense, and I
answered "No." That statement is correct so far as
it goes, but I forgot we were talking about periods
six or seven years ago, so I want to correct that
to say that we attempted to construct three or four

118 United States of America vs.

(Testimony of J. Leslie Morris.)
different little devices for aligning the connecting
rod. One was a little electric attachment that had a
light, and if the rod was misaligned, when wt put
it on there, the light would burn. That we found
was an unnecessary operation, because if we did
align the connecting rod, the garageman or mechan-
ic later has to attach the piston to this connecting
rod before he can install it in the engine.

The very first operation he has to do when he at-
taches the piston to the connecting rod is to align
the whole assembly, because, after all, the alignment
is not so much between the parallel axis and the
shaft, but between the perpendicular wall of the cyl-
inder, the piston standing down there perpendicu-
larly at right angles to the axis of the crank shaft ;
so the operation wTe were doing we found had to
[117] be repeated before the connecting rod could
be installed in the engine, so there is no need for
us to do it in our place. I want to make that cor-
rection.

Mr. Meserve: Mr. Reporter, will you be kind
enough to read the Court's question and the witness'
answer which appears on page 93 of your notes?

(The record referred to was read by the reporter,
as follows:

"The Court: Then 60 or 65 per cent — let us put
it in larger figures — would consist of the delivery
to your customer of a rod that had either been pro-
cessed in your establishment, or a new rod that had
been obtained by you from one of those dealers?

«7. Leslie Morris Co., Inc. 119

(Testimony of J. Leslie Morris.)

"The Witness: That is exactly correct, yes,
sir.")
By Mr. Meserve :

Q. Now, is that answer correct, Mr. Morris, as
you reflect on it %

A. That is a little confusing. I don't know yet
just exactly what the Court wanted on that point.
I am just a little confused. Maybe if you would read
the question previous to that it would help me.

Q. With your Honor's permission, I think I can
clear up the witness' mind what the Court was seek-
ing information on. What per cent, Mr. Morris, of
rods used in your business are new rods or rods
that you purchase and repair [118] and place in
stock for service ?

A. What per cent of what, sir ?

Q

A

Q

A

Q

A

Of the total volume of your sales business.
About five per cent per month.

And the remaining 95 per cent

Now, I am following you.
— consist of what ?

The remaining 95 per cent of our business
consists of connecting rods that we receive, babbitt
and return to the customers. I say customers col-
lectively, because I don't want to leave the impres-
sion that the connecting rods go directly to the same
parties who sent them in. In other words, if we re-
ceive in this morning's shipment from five or six
different jobbers, let us say, seventy-five Chevrolet
connecting rods, this afternoon or tomorrow morn-

120 United States of America vs.

(Testimony of J. Leslie Morris.)
ing those shipments will go back; the 75 connect-
ing rods will be of the Chevrolet type; that is, of
the same 75 that came in the previous morning, the
75 connecting rods will be on their way back to the
six or seven or eight or ten customers I mentioned,
but I wouldn't say that the identical Chevrolet rod
that came from one customer goes back to that same
customer, because they are all exactly alike. Unless
we put some mark on them, it would be physically
impossible for us to tell who they came from, ex-
cept we have the others waiting in the stockroom to
go out.

Q. The five per cent of the total of the 100 per
cent [119] based on your total sales represents con-
necting rods that you purchase either new from
automotive representatives, or second-hand ones
from people who deal in second-hand rods'?

A. Yes, sir.

Q. That is, both together total five per cent?

A. Both together total less than five per cent, I
might say.

Q. And that five per cent of your total business,
Mr. Morris, is occasioned by what practice?

A. What makes it necessary %

Q. Yes.

A. Demands from jobbers who haven't yet, or
wholesalers who haven't been able to stock their
shelves with the late type of connecting rods, and
they depend on us to ship them to them. You men-

/. Leslie Morris Co., Inc. 121

(Testimony of J. Leslie Morris.)
tioned this morning Fresno. If the wholesaler in
Fresno we are speaking of, has an order which
comes over his counter for a set of '40 connecting
rod exchanges, he has the old connecting rods, but
the garageman has brought them in to him; he is
in Fresno, and he wants as fast service as he can
get on them ; so he immediately wires us — telegraphs
us or phones us to ship him these connecting rods.
I ship them to him, but in that turnover I am com-
pelled to buy the late connecting rods to the extent
of the less than five per cent of the total babbitting
I mentioned. [120]

Q. Then, if I understand it correctly, the five
per cent of rods you are obliged to purchase, both
of new and second-hand, represents the lag or space
of time that it would require the rods that come in in
the morning to go through and be babbitted, and
be back out on the shelf. Is that correct ?

A. That is right. You might call it the slack.

Q. To take up the slack? A. Yes.

Q. It is a fact, is it not, Mr. Morris, that in many
instances, or in some instances, you do rebabbitt
and deliver back the actual rod received from the
customer?

A. In a great many instances.

Q. And that represents about what per cent of
the total?

A. Let us say 10 per cent, because usually those
rods that go directly back to the customer arise from
the instructions that are on the order. Frequently

122 United States of America vs.

(Testimony of J. Leslie Morris.)
they say, "Same rods back." On other occasions
they are machined — babbitted by us; the babbitt
is poured to a size to fit a particular crankshaft that
has been ground, so a standard rod would be useless
to them; so naturally we babbitt the same rods and
send them back to them.

Q. And it is also occasioned, is it not, from un-
usual types of rods, such as come out of tractors
and large Diesel motors I [121]

A. Yes, that's right; expensive rods. There are
some connecting rods — for instance, some rods we
babbitt for three or four dollars each, which the cost
of the rod alone would be around forty to buy the
rod outright ; but nobody wants to do that. Our files
are full of letters — they have even wired, for a cer-
tain type of rod, and we write or wire right back,
"Unable to secure. Send us rods in for rebabbit-
ting." We can't give service on those rods, because
they cost too much, and we can't expect the turn-
over of those we receive in exchange.

Q. Mr. Morris, is there a distinction in the auto-
motive industry, and your particular branch of it
in particular, between a damaged or injured con-
necting rod and one that is worn?

A. Definitely.

Q. What is the distinction?

A. The one that is merely worn requires re-
babbitting. The one that is damaged— what is the
other word you used — damaged or ?

Q. Or injured.

J. Leslie Morris Co., Inc. 123

(Testimony of J. Leslie Morris.)

A. Or injured, why, it's not fit for further
service.

Q. A worn connecting rod that comes into your
plant for rebabbitting can operate in an internal
combustion motor? A. Yes.

The Court: Cannot be, you say? [122]

Mr. Meserve: Can.

The Witness: It can operate, yes.

Q. The rebabbitting is for building up the bear-
ing so it will operate more efficiently?

A. Preserve the oil pressure, and things of that
sort. It will function. In fact, I suppose 95 per cent
of the automobiles that pass this building right now,
the bearings are too loose, but they are still run-
ning just the same.

j Q. Can you tell us, Mr. Morris, when you are
buying connecting rods, to meet this five per cent
that you have defined, approximately what the aver-
age cost of those connecting rods is; not the new
one, but the second-hand one — about what the aver-
age cost is?

A. The average cost would be in excess of $1.00, 1
would say; possibly $1.50. I haven't prepared fig-
ures on that, so I would guess between $1.00 and
$1.50 would be our average cost.

Q. What would be the range of cost of the popu-
lar types?

A. From $1.00 to $3.50.

Mr. Meserve: Mr. Jewell, do you care to have
any further evidence on that? I am merely asking

124 United States of America vs.

(Testimony of J. Leslie Morris.)
you. We have here specimen invoices, if you would
like to have them in the record on this phase of the
evidence. Pardon me, your Honor, I should have
asked permission to address counsel. [123]

Mr. Jewell: Will the Court permit me to ex-
amine these a moment?

Mr. Meserve: It is merely to substantiate the
statement of fact made by the witness.

Q. Mr. Morris, I will show you what appear to
be invoices addressed to the J. Leslie Morris Com-
pany, a group of them, and ask you to examine
them and tell us what they are, please.

A. These are invoices for connecting rods pur-
chased from Mr. LaVine, a gentleman who deals in
this type of commodity, and I recognize it. He is so
familiar with us down there that he uses the name
"Pete," but we all know him as Mr. LaVine. It
represents sales to us of connecting rods to be re-
babbitted, which are other than for'and new. They have
been removed by like establishments, or by some-
one from where he secures them, and carefully se-
lected to see that there is nothing wrong with them,
because when we are paying $1.90 or $1.60

Q. Mr. Morris, will you answer the question?

A. Yes. That is what they are.

Q. Look through the group of invoices I have
handed you, and advise us if that is a fairly rep-
resentative type as to cost.

A. Yes, it is.

Q. Of the rods that you purchased to fill in the
five per cent of the rods that you rebabbitt. [124]

J . Leslie Morris Co., Inc. 125

(Testimony of J. Leslie Morris.)

A. Second-hand rods, yes, sir, that is correct.

Q. What, Mr. Morris, would be the approximate
average weight of a connecting rod that would be
of a popular type ?

A. I would say the average weight would be
around two or two and a half pounds each.

Q. The smaller ones, of course, are lighter than
the larger ones'? A. Yes.

Q. But those that you purchase in the five per
cent will average

A. Two or two and a half pounds each.

Mr. Meserve: We will offer the invoices to-
gether, as one exhibit.

The Clerk: Plaintiff's Exhibit 43 in evidence.
(The document referred to was received in
evidence and marked " Plaintiff's Exhibit No.
43.")

,,-V

/t

12C

ORDER No.

DATE.

.19.

SHIP TO__

i

AT

HOW SHIP
TERMS

nr-*,

<^7

imiuj states chcwi coum

FOR THE NINTH Clfl

EUJBD

MAR 2 7 1941

PAUL P. OBRIEr

CLERK

/. Leslie Morris Co., Inc. 127

(Testimony of J. Leslie Morris.)

Mr. Meserve: And with the right, Mr. Jewell,
if we elect, subject to the approval of the Court, to
substitute copies in lieu of the originals, if we
would like to keep them in our permanent record.

Mr. Jewell: That is perfectly acceptable to me.

By Mr. Meserve :

Q. Are you familiar, Mr. Morris, with the going
price of junk, that would be junk occasioned by
damaged connecting rods not further usable, or that
type of steel, during the period in question? [125]

A. Yes, I would be.

Q. What, approximately, was the going price of
junk?

A. It was very low at the beginning of this
period, and it increased, I would say, from eight to
ten dollars per ton.

Q. What would you say was the highest price
junk brought during that period?

A. Scrap forging steel, is what you mean?

Q. Yes, scrap forging steel.

A. I would say the top price would have been
$11.00 a ton.

Q. During the course of your business, Mr.
Morris, you have published a price list for your
trade of the prices charged for rebabbitting the
various types of rods? A. Yes, sir.

Q. I will show you, Mr. Morris, one of the
earliest in date, and ask you if that is a copy of your
published price list that was effective as of the date
that appears on its face. A. That was, yes.

128 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. Can you briefly for us, Mr. Morris, so that it
can be made intelligent in the record, define the
symbols that appear on the inside of the price list,
by just taking any one item; and those apply the
same as to all items, except a variance in the price,
do they not? A. That's true. [126]

Q. Just explain it.

A. This is a net price sheet to the wholesaler;
that is the wholesale merchant, I believe I have
spoken of him as; stock No. 2, net rebabbitting,
$1.80; net rod, 50 cents; net complete is the sum of
the two, $2.30.

Q. Taking the first item in the first left-hand
column of the document that you are looking at,
which is No. 2. That is your stock number?

A. Yes, sir.

Q. And you have a catalog that identifies that
by its stock number ? A. Yes.

Mr. Meserve: We will offer in evidence as
Plaintiff's Exhibit next in order the identified price
list effective May 15, 1931.

The Clerk: Plaintiff's Exhibit 44 in evidence.
(The document referred to was received in
evidence and marked " Plaintiff's Exhibit 44.")

By Mr. Meserve:

Q. I show you a similar document that is dated
effective August 1st, 1932. Would your testimony
be the same as to that, except that it is a later price
list?

J. Leslie Morris Co., Inc. 129

(Testimony of J. Leslie Morris.)

A. Exactly the same, yes, sir. That is the price
list we used at that time.

Mr. Meserve: We will offer the document that
was last identified by the witness as Plaintiff's next
exhibit in [127] order.

The Clerk: Plaintiff's Exhibit 45 in evidence.
(The document referred to was received in
evidence and marked " Plaintiff's Exhibit No.
45.")

PLAINTIFF'S EXHIBIT No. 45

Revised

Confidential Net Prices for Authorized

Jobbers Only

Effective August 1st, 1932

[National Standard Parts Association Emblem]

Moroloy

Connecting Rod and Main Bearing

Rebabbitting

J. Leslie Morris Co., Inc.
"Coast to Coast"

National Rebabbitters to the Automotive
Parts Jobber

Moroloy Bearing Service

Moroloy Bearing Service
655 W. 55th St.
New York City

130 United States of America vs.

(Testimony of J. Leslie Morris.)

Moroloy Bearing Service
69 N. Tenth St.,
Portland, Ore.

Moroloy Bearing Service
11 So. Ninth St.,
Minneapolis, Minn.

Moroloy Bearing Service
1361 So. Hope St.,
Los Angeles, Cal.

Moroloy Bearing Service
162 No. Fourth St.,
Columbus, Ohio

Moroloy Bearing Service
296 Ivy St., N. E.,
Atlanta, Ga.

Moroloy Bearing Service
606 Santa Fe Drive,
Denver, Colo.

Moroloy Bearing Service
2712-16 So. State St.,
Chicago, 111.

Moroloy Bearing Service
2354 Valley St.,
Oakland, Cal.

Moroloy Bearing Service
1516 Thirteenth Ave., W.,
Vancouver, B. C.

J. Leslie Morris Co., Inc. 131

(Testimony of J. Leslie Morris.)
Moroloy Bearing Service

1934 Broad St.,

Regina, Sask.

Moroloy Bearing Service
10 So. Davis St.,
Jacksonville, Fla.

Moroloy Bearing Service
310 North Laurel St.,
Richmond, Va.

Moroloy Bearing Service
1520 Tenth Ave.,
Seattle, Wash.

Moroloy Bearing Service
Stock Net Net Net

No.

Rebab.

Rod

Comp

2

1.80

.50

2.30

6

1.80

.75

2.55

7

1.80

.75

2.55

12

2.00

7.00

9.00

14

3.00

10.00

13.00

15

4.80

13.00

17.80

17

1.05

.25

1.30

18

1.05

.25

1.30

19

1.05

.25

1.30

20

1.05

.25

1.30

25

1.05

.25

1.30

This confidential net price list is issued for the
convenience of your purchasing department.

132 United States of America vs.

(Testimony of J. Leslie Morris.)

The "Net Rebabbitting ' ' is charged when the old
rod is offered in exchange. The "Net Complete "
price is charged when the old rod is not offered in
exchange, but promised later. The "Net Rod"
charge is credited upon receipt of the old rod.

The "Net Complete " charge is also applicable to
the outright purchase of connecting rods.

We ask that the exchange rods to cover those sent
out as "Complete" be returned to us fifteen days
from date of shipment.

Connecting rods rebabbitted to specified under-
sizes are subject to an additional charge of 50^ net
per rod.

Defective forgings will not be rebabbitted but
will be returned to the sender.

We are equipped to rebabbitt all types of con-
necting rods and main bearing caps not listed.

We reserve the right to correct listings of con-
necting rods sent us for rebabbitting.

All prices are subject to change without notice.

Industrial and Special
Automotive Bearings

Wholesalers receive 60% discount on special
bearings
MOROLOY BEARING SERVICE

[Endorsed]: Plaintiff's Exhibit No. 45. Filed
5/28, 1940. R. S. Zimmerman, Clerk. By B. B.
Hansen, Deputy Clerk.

J. Leslie Morris Co., Inc. 133

(Testimony of J. Leslie Morris.)
By Mr. Meserve :

Q. That is the one effective 1532. I will show
you a similar one, Mr. Morris, that is dated effective
April 15th, 1933, and ask if your testimony would
be the same as to that.

A. My testimony is the same as to that, yes, sir.
That is the net price sheet at that time.

Q. For the time of the last one ?

A. Yes, it's the same.

Mr. Meserve: We will ask the Court to mark
the one effective April 15, 1933, as the next exhibit
in order.

The Clerk: Plaintiff's Exhibit 46 in evidence.
(The document referred to was received in
evidence and marked " Plaintiff's Exhibit No.
46.")

Mr. Meserve: And the one effective September
24, 1934, as 47.

The Clerk: Plaintiff's Exhibit 47.

(The document referred to was received in
evidence and marked " Plaintiff's Exhibit No.
47.")

134 United States of America vs.

(Testimony of J. Leslie Morris.)

PLAINTIFF'S EXHIBIT No. 47

Moroloy

Western Babbittors Association

Jobbers' Confidential Net Cost Prices

for

Connecting Rod and Main Bearing

Cap Rebabbitting

Also Net Forging Deposits

Effective September 24, 1934

The net rebabbitting is charged when the old rod
is offered in exchange.

The net forging price is charged in addition when
the old rod is not offered in exchange.

The net forging charge is credited upon return of
the old rod to us.

We ask that the exchange rods to cover those sent
out, be returned us within fifteen days.

Forgings rebabbitted to specified undersizes are
subject to an additional charge of 30c each.

Defective forgings will not be rebabbitted, but
will be returned to the sender.

We are equipped to rebabbitt all types of con-
necting rods and main bearing caps not listed.

We reserve the right to correct listings of forg-
ings sent us for rebabbitting.

All prices are subject to change without notice.

Form 1-A

[Endorsed]: Plaintiff's Exhibit No. 47. Filed
5/28, 1940. R. S. Zimmerman, Clerk. By B. B.
Hansen, Deputy Clerk.

J. Leslie Morris Co., Inc. 135

(Testimony of J. Leslie Morris.)
By Mr. Meserve :

Q. These documents that have just been intro-
duced in evidence, Mr. Morris, were all of the price
lists [128] published and in effect during the period
involved in this case, from 1931 to 1934?

A. Yes, sir.

Q. I will show you, Mr. Morris, a document
dated 1932, and ask you to identify it.

A. This is our sheet that goes to the jobber to
help him to identify the connecting rod.

Q. Do you describe it as a catalog?

A. We call it a catalog, yes. That is the catalog
in effect at that time.

Q. I will show you a similar one of 1933.

A. That is our publication, yes.

Q. And those were the two catalogs that were in
effect with and at the same time as the price lists
and during the time involved in this case I

A. Yes.

Mr. Meserve: We will ask that the one of 1932
be marked as Plaintiff's Exhibit next in order.

The Clerk : Plaintiff 's Exhibit 48.

Mr. Meserve : And the one 1933

The Clerk : Plaintiff 's Exhibit 49.

(The documents referred to were received in
evidence and marked "Plaintiff's Exhibits Nos.
48 and 49," respectively.)

136 United States of America vs.

(Testimony of J. Leslie Morris.)

PLAINTIFF'S EXHIBIT No. 49

MOROLOY

Bearing Service

Bebabbitted Connecting Rods

1933

Moroloy Bearing Service

National Rebabbitters

Features of 1933!!!!

Jobber's Inventories Reduced

Rights and Lefts Now Interchange

Jobbers need no longer stock both rights and
lefts to service off-set pressure feed Connecting
Rods. By our exclusive manufacturing practice,
developed for 1933 conditions . . .

Jobbers Now Reduce Inventories
50% on These Numbers

Obsolescence Protection

and

Stock Control

Again 1933 conditions demand protection of Job-
ber's Investments. Moroloy has met the situation
with an Obsolescence and Stock Control Plan, which
guarantees complete and continuous protection of
the Jobber's Connecting Rod Investment. Details
on request.

J. Leslie Morris Co., Inc. 137

(Testimony of J. Leslie Morris.)

Moroloy Connecting Rods

Are Centrifugally Bonded and Automatically

Machined to Duplicate Original Equipment

Casting

Moroloy Centrifugally Processed Rods meet en-
gineering specifications of original car and motor
manufacturers.

This process deposits babbitt on the tinned sur-
face under extreme centrifugal pressure, assuring
an absolute bond between babbitt and steel, that is
not obtainable by the old fashioned hand poured
method.

Centrifugally processed connecting rods are en-
dorsed by the Society of Automotive Engineers and
are used exclusively by the following manufac-
turers :

Auburn, Buick, Continental, Cord, Chrysler, De
Soto, Dodge, Durant, Elcar, Essex, Gardner,
Graham, Hudson, Hupmobile, Jordan, Kissel,
Lycoming, Marmon, Plymouth, Ruxton, Studebaker,
Stutz, White, Willys-Knight, and Windsor.

"If It's Not Centrifugally Cast— It's Not a Fac-
tory Duplicate

Automatic Pyrometers

To regulate the temperature of rods, tin and
babbitt, the Moroloy Centrifugal Process eliminates
human element entirely. Heat control is obtained
by approved automatic pyrometers.

138 United States of America vs.

(Testimony of J. Leslie Morris.)

Machining and Finishing

Moroloy machining and finishing is accomplished
with the same engineering exactness, following
closely the recommendations and usages of leading-
original manufacturers.

Modern high compression engines demand close
tolerances, both in bearing diameter and width.
Of equal importance is proper length spacing.
Moroloy precision tools are automatic in maintain-
ing exact length dimensions between center of pis-
ton pin and center of crankshaft.

Moroloy processed rods are straightened, cleaned
and serviced with new bolts, nuts, shims and piston
pin bushings. Oil Clearance allowed. No scraping
nor reaming required.

Electrical alignment is an exclusive Moroloy
feature.

For Quick, Simple and Proper Installation,
Insist on Moroloy

The extra quality built into every rod means
longer life, trouble free operation and Owner Sat-
isfaction, the factors most important in building
your business.

Service

Fifteen manufacturing plants, located at strategic
points over the United States and Canada, render a
coast to coast service, convenient to every jobbing
center. Ample stocks at all branches assure same

J. Leslie Morris Co., Inc. 139

(Testimony of J. Leslie Morris.)

day shipment. Telephone and telegraphic orders

receive instant attention.

Moroloy Bearing Service

J. Leslie Morris Co., Inc.

"Coast to Coast"

National Rebabbitters to the Automotive
Parts Jobber

Owned and Affiliated Stations Operating in the
following Cities —

655 West 55th St.,
New York City, N. Y.

1361 So. Hope St.,
Los Angeles, Calif.

2354 Valley St.,
Oakland, Calif.

69 North Tenth St.,
Portland, Ore.

296 Ivy St. N. E.,
Atlanta, Ga.

2712-16 So. State St.,
Chicago, 111.

162 N. 4th Street,
Columbus, Ohio

11 So. Ninth St.,
Minneapolis, Minn.

140 United States of America vs.

(Testimony of J. Leslie Morris.)

606 Santa Fe Drive,
Denver, Colo.

1516 Thirteenth Ave., W.
Vancouver, B. C, Canada

1934 Broad St.,
Regina, Sask., Canada

10 S. Davis St.,
Jacksonville, Fla.

1520 10th Ave.,
Seattle, Wash.

310 N. Laurel St.,
Richmond, Va.

Table of Contents
Section Page

1 Alphabetical Arrangement of Connecting

Rods with Complete Specifications 1

2 Alphabetical Arrangement of "Cast In"

Main Bearing Caps, Listed by Name of
Motor 18

3 Numerical Arrangement of Moroloy Stock

Numbers 20

4 Numerical Arrangement of Forging

Numbers 25

5 Numerical Arrangement of Inter-change-

able Rods 29

J . Leslie Morris Co., Inc. 141

(Testimony of J. Leslie Morris.)

Special Sizes

To fit Reground Crankshafts, Connecting Rod
and Main Bearings are finished to micrometer
dimensions at an extra charge of seventy-five cents
(75^) per bearing. This charge is Net and should
be added after making deduction of regular trade
discounts.

Specify exact micrometer size of reground crank-
shaft.

Industrial and Special
Automotive Bearings

To determine list prices for rebabbitting Indus-
trial and Automotive Main Bearings (Bronze or
Steel Backs) and Connecting Rods not listed in
this hand book :

Measure length of bearing over all. Bearings un-
der 2%" diameter and 3" in length, charge $3.50.
This price is net, not subject to trade discounts.
Ask for quotations on larger bearings.

Undersize charge per unit applicable in addition
if special size.

142 United States of America vs.

(Testimony of J. Leslie Morris.)

Abbreviations: — "C" — Pin clamps in rod. No bush-
ing. UB" — Pin floats in rod. Bushing used.
"FFP" — Pin floats in rod and piston. Bushing
may or may not be used.

Note — All rods marked thus * are special jobs and
are not stocked for exchange. Rods not carried
in stock must be sent in for rebabbitting. Bush-
ings, shims, bolts and nuts charged for extra on
all special rods requiring these parts new. Mod-
ern facilities guarantee the fastest possible
service.

Do not accept rods for exchange that are bent,
cracked or mutilated.

143
SECTION I

ALPHABETICAL LIST

REBABBITTED CONNECTING RODS

ARRANGED BY NAME OF MOTOR

Notice to Salesmen: (1) When old rod is offered in exchange, use Column "A" prices, subject to
trade discounts. (2) When old rod is not offered in exchange, but promised later, add Column "B"
prices NET. Upon return of old rod refund Column "B" prices NET.

"A" "B"

Stock List Price Net Forging Bearing Size Pin Si«e

Name Year and Model No. on Rod No. Rebabbitting Deposit Diam. Width and Type

A. C. F. Bus, 17-30 Pass. 1927-32 HM-64-65

H-9789 258 6.00 * 2% 2 7/16 V/A B

A. C. F. Bus, 17-23 Pass. 1931, 6 Cyl 18090-B 525 3.50 6.00 2y4 iy2 lVs C

A. C. F. Bus, 21-29 Pass. 1931-32, 6 Cyl 15090-B 526 3.50 6.00 2y2 1% lx/4 C

Acme 2 Tons, 1927-29 8UD-502 242 3.00 3.00 2y8 1% 1 B

Acme 2 Tons, 1928-31 8UD-505 524 3.00 3.00 2y8 1% % B

Acme 4y2-7y2 Tons, 1925-31 (oil line

integral) B5D-501 505 7.50 17.00 2% 3 1% B

Acme Bus & Truck 3y2-6 Tons, 1926-29...7TD-500 425 5.00 10.00 2y2 1 13/16 iy4 B

Acme 7 Tons, 1928-31 26HD-501 631 6.50 16.00 3 2y8 iy2 B

Acme 31/2-7 Tons, 1928-31, 6 Cyl 7TD-500 425 5.00 10.00 2y2 1 13/16 1% B

Acme %, 1 Ton, 1926-31, 6 Cyl 9LD-504 163 2.50 2.00 2 V/8 .860 B

Acme 3, 4 Tons, 1929-31, 6 Cyl 20RD-501 527 3.50 7.00 2y2 1 13/16 1% B

Acme 2y2, 3 Tons, 1929-31, 6 Cyl 16RD-500 615 3.50 7.00 2% 113/16 iy4 B

Acorn 1, 2 Tons, 1927-31 8UD-505 524 3.00 3.00 2% 1% 7/s B

Acorn 2%, 3 Tons 1927-31 WSE-2 449 5.00 10.50 2% 1% 1% B

Ajax 1926, 6 Cyl 2120-A-4

15001 194 3.00 2.00 1% 15/16 % B

[Endorsed]: Plaintiff's Exhibit No. 49. Filed 5/28, 1940. E. S. Zimmerman,
Clerk. By B. B. Hansen, Deputy Clerk.

144 United States of America vs.

(Testimony of J. Leslie Morris.)
By Mr. Meserve:

Q. Taking, Mr. Morris, just for elucidation, page
3 [129] of Exhibit 49, — and the system used in the
catalog and the price sheet is the same, regardless
of the year?

A. The system used is the same.

Q. I direct your attention — and this is only just
to elucidate the whole matter — to Chevrolet 1932,
six cylinder, on page 3, Section 1, and will ask you
to explain to us what appears in the next column.

A. That is the serial number.

Q. And that is the number, is it, that appears?

A. On the forging, on the shank of the connect-
ing rod, yes. That is the number that is raised in
the die of the connecting rod.

Q. Then in the next column following that?

A. The 516 is our stock number.

Q. And that 516 is the same 516 that appears
on the price sheet?

A. Yes, in the net price sheet,

Q. And that is the adopted plan of the catalog
all the way through? A. Yes.

Q. The names appearing in the left-hand corner
are of the motor manufacturers ?

A. That's right.

Q. The stock number that appears in the cata-
log, and appears in the price sheet, whereabouts
does it appear in connection with your business?

[130]

A. On the end of the box in which we pack the
connecting rods.

J . Leslie Morris Co., Inc. 145

(Testimony of J. Leslie Morris.)

Q. On the carton in which you ship it ?

A. On the carton in which we ship it, yes.

Q. You do not put that stock number at any
time on the connecting rod itself? A. No.

Q. Or any other identification mark?

A. No.

Q. I believe you testified this morning you did
not remove any identification mark that appears
on the rod? A. None whatever.

Q. And never have? A. And never have.

Q. Mr. Morris, I will show you a red carton that
is produced from your business, and ask you if that
is the carton that you just last referred to in your
evidence, in which you packed or shipped the re-
babbitted rods?

A. This is the carton in which we shipped the
rebabbitted rods at the time of the period we
speak of.

Q. That was what I was going to qualify next.
That is the type used during the time involved in
this case? A. Yes.

Mr. Meserve: We will ask the Clerk to mark
this as Plaintiff's Exhibit next in order.

The Clerk: Plaintiff's Exhibit 50. [131]

(The document referred to was received in
evidence and marked " Plaintiff's Exhibit No.
50.")

By Mr. Meserve :

Q. Referring to Plaintiff's Exhibit No. 50 that
you have just identified, Mr. Morris, I will direct

V

mSSU

^- - •-

^ ''-V^

*v fc~.

-V

V3-

<*

J •-.

.*-■.!

^j

/. Leslie Morris Co., Inc. 147

(Testimony of J. Leslie Morris.)

your attention to a number that appears on the end,

315, and ask you to tell us what that is.

A. That is the connecting rod for a Pontiac-6.

Q. What is 315?

A. That is the number again that is in our so-
called catalog and price sheet ; net sheet ; our identi-
fying number.

Q. That is your identifying number1?

A. Yes.

Q. And, except as to the change in numbers, is
the system used the same, each number referring
to the particular type of connecting rod, is that-
correct ? A. That is correct, yes.

The Court: What is the inscription, "Fac. No.
691 "? I am reading from Exhibit 48. Is that the
factory number*?

The Witness : That is the factory number that is
on the shank of the rod. That is the same number
we have been referring to all the time.

The Court: The factory number of the original
manufacturer, whether a Buick, or Chevrolet, or
what it is*?

The Witness: The factory number that appears
on the shank of the rod. Your Honor, that is not
always the stock [132] number. Sometimes that
varies, but this number that appears on the shank
of the rod, we put that merely for identification so
they will know what rod we are talking about; what
rod they are to receive ; what rod they will require ;
because about the first thing a garageman does when

148 United States of America vs.

(Testimony of J. Leslie Morris.)
he takes a rod out is to look at the number; not
our stock number, but the number on the connecting
rod itself. He goes to his wholesaler and says, "Give
me one like that."

The Court: Is that

The Witness : That is the factory number.

The Court : Not your number ?

The Witness: Not my number. That's right,
yes. [133]

HARRY W. PATTIN

a witness called by and on behalf of the Plaintiff,
having been first duly sworn, was examined, and
testified as follows:

The Clerk : You will state your full name to the
court.

The Witness : Harry W. Pattin.

Direct Examination
By Mr. Meserve :

Q. Mr. Pattin, where do you reside?

A. 2107 Ames Street, Los Angeles.

Q. What is your business or prof ession ?

A. I am a certified public accountant,

Q. And you are licensed to practice your pro-
fession in the State of California? A. I am.

Q. How long have you been a certified public
accountant? A. Since 1925.

Q. You have performed professional services
for the plaintiff corporation in this case ?

J. Leslie Morris Co., Inc. 149

(Testimony of Harry W. Pattin.)

A. I have. [142]

Q. The J. Leslie Morris Company?

A. Yes.

Q. When did you first perform any accounting
services for that corporation ?

A. In July, 1933.

Q. And it consisted of what?

A. At that time I had to go back for about a
year or a year and a half to audit the books. Since
then I have prepared the financial statements, tax
returns, and various other special matters.

Q. And you made the annual audit ?

A. Yes, I did.

Q. And have made your own examination of the
books of the corporation? A. Yes, I did.

Q. For the period through the year 1931 ?

A. Well, not very extensively back of 1931,
although I did see enough of the books and the tax
returns to satisfy me that the books were correct.

Q. I show you, Mr. Pattin, a document entitled
" Financial Statement, J. Leslie Morris Co., Inc./'
for December, 1931, and ask you if you can identify
that document. A. Yes, I can.

Q. State what it is, please.

A. This is the balance sheet showing the assets
and [148] liabilities of J. Leslie Morris Company,
Inc., as of December 31, 1931.

Q. That was prepared, was it, before you became
affiliated, or worked professionally for the com-
pany? A. Yes, it was.

150 United States of America vs.

(Testimony of Harry W. Pattin.)

Q. But since you have been their accountant,
you have verified the figures that are indicated on
that statement, with the books of the corporation,
and determined whether they are correct or incor-
rect? A. Yes, I did.

Q. What did you find in that particular? That
they were correct ?

A. Yes, I found they were substantially correct,
There was one slight change made after a Federal
auditor examined this, a slight change in the rate
of depreciation ; not very substantial.

Q. In the rate of depreciation?

A. That's right.

Mr. Meserve : We wTill offer in evidence the docu-
ment, identified by the witness as Plaintiff's next
exhibit in order, being the assets and liabilities or
financial statement,

The Clerk: Plaintiff's Exhibit 51 in evidence.

By Mr. Meserve:

Q. I will show you a second document, Mr. Pat-
tin, entitled " Statement of Operations," and ask
if you can [149] identify that document.

A. Yes, this shows the result of operations of
J. Leslie Morris Company for the year from Janu-
ary 1, 1931 to December 31, 1931.

Q. Are you familiar with the statement?

A. Yes, I am.

Q. Have you verified the figures thereon from
the books since you have been the accountant for
the company?

J. Leslie Morris Co., Inc. 151

(Testimony of Harry W. Pattin.)

A. Yes, I know they are based on the books and
records; taken from the books and records.

Mr. Meserve: We will offer the profit and loss

statement,

Q. This is a profit and loss statement you have
just identified ? A. That's right.

Mr. Meserve: — as Plaintiff's next exhibit in
order.

The Clerk: Plaintiff's Exhibit 52 in evidence.
(The documents referred to were received in
evidence and marked ' ' Plaintiff 's Exhibits Nos.
51 and 52," respectively.)

By Mr. Meserve :

Q. Examine Plaintiff's Exhibit 52, Mr. Pattin,
will you, and tell us what the result of the J. Leslie
Morris Company operation was for the year 1931,
as to whether it operated at a profit or loss ?

A. It shows a net loss of $3370.07. [150]

Q. And that includes all of its operations,
whether here or in any of its various then existing
branches ?

A. That's right. That's the entire concern.

Q. Have you, since observing the result of this
statement, checked the books to verify whether that
loss actually existed or not, as shown by the books?

A. Yes, I did.

Q. And you found it to be correct?

A. Yes.

Q. That it was a net loss of operation for that
year? A. Yes.

152 United States of America vs.

(Testimony of Harry W. Pattin.)

Q. I will show you another document entitled
" Financial Statement, December, 1932, " and ask
you if that document that you are now examining
is similar to Plaintiff's Exhibit 51, except for the
year 1932. A. Yes, it is.

Q. Did you have occasion to verify the figures
and facts therein contained, from an examination of
the company's books? A. Yes, I did.

Q. What did you ascertain?

A. That these figures were taken from the books
and records of this company.

Q. And truly reflect the condition as indicated
from the books? [151] A. Yes.

Mr. Meserve: We will offer the financial state-
ment for the year 1932 as Plaintiff's Exhibit 53.

The Clerk : 53 in evidence.

(The document referred to was received in
evidence and marked " Plaintiff's Exhibit No.
53.")

By Mr. Meserve :

Q. I will show you a " Statement of Opera-
tions," January 1, 1932 to December 31, 1932, and
ask you if you identify that as being a similar
statement to Plaintiff's Exhibit 51, except for the
year 1932. A. Yes, it is similar.

Q. And have you verified the facts and figures
indicated on the statement, from the books and
records of the corporation I

A. Yes, I did.

Q. And do they truly reflect the condition of

J . Leslie Morris Co., Inc. 153

(Testimony of Harry W. Pattin.)
the company as indicated by the books and rec-
ords? A. They do.

Q. What was the result of the operations of
the company for the year 1932 ?

A. A net profit of $4574.73.

Q. Was that net profit computed on taking into
consideration the same elements that the net loss
was determined on the preceding year I

A. Yes. [152]

Q. All of the same phases of operation in all
of the various plants of the company ?

A. That's right. It is the net result of the en-
tire corporation.

Mr. Meserve: We will offer this statement as
Plaintiff's Exhibit next in order.

The Clerk: Plaintiff's Exhibit 54 in evidence.

By Mr. Meserve :

Q. I will show you a statement: " Balance
Sheet," dated December 31, 1933, and ask you if
you can identify that document.

A. Yes, that is the balance sheet of this company
as of December 31, 1933.

Q. Who prepared that?

A. I prepared this myself.

Q. From the books ? A. Yes.

Q. Was there anything else that you did to
verify it? I assume that you checked against the
bank records?

A. Yes, I audited the books. I make a con-
tinuous audit. I am down there at least once a
week.

154 United States of America vs.

(Testimony of Harry W. Pattin.)

Q. And that is a correct statement of the com-
pany as of that period, is it? A. It is.

Mr. Meserve: We will offer the balance sheet
for 1933 as Plaintiff's Exhibit [153]
The Clerk: 55.

(The documents referred to were received in
evidence and marked " Plaintiff's Exhibits Nos.
54 and 55," respectively.)

PLAINTIFF'S EXHIBIT NO. 55

J. Leslie Morris Co., Inc.

BALANCE SHEET

December 31, 1933

Los

Portland

Assets

Total

Angeles

Seattle

Chicago

Columbus

New York

*

*

*

*

*

*

*

[Endorsed]: Plaintiff's Exhibit No. 55. Filed 5/
28/1940. R. S. Zimmerman, Clerk. By B. B. Han-
sen, Deputy Clerk.

By Mr. Meserve :

Q. I will show you a profit and loss and income
statement dated December 31, 1933, and ask you
if you identify that %

A. Yes, that's the statement of income, profit
and loss, for this company, for the year 1933.

Q. Who prepared it? A. I did.

Q. From the books and records of the corpo-
ration ? A. Yes.

J. Leslie Morris Co., Inc. 155

(Testimony of Harry W. Pattin.)
Q. What does the result show for that year?
A. It shows a net loss of $2258.07.
Q. And was that based upon the same method of
calculation of profit and loss that is indicated in this
statement for the years 1931 and 1932 ?
A. Yes, it was.

Mr. Meserve: We offer the document last iden-
tified by the witness as Plaintiff's exhibit.
The Clerk : 56 in evidence.

(The document referred to was received in
evidence and marked as " Plaintiff's Exhibit
No. 56. ") [154]

By Mr. Meserve :

Q. The statement that I now hand you, being
balance sheet for the year 1934, your testimony is
the same as to that, Mr. Pattin, as it was for the
previous similar statement for the year 1933?

A. Yes, it is.

Q. You prepared it?

A. I prepared it from the books and records.

Q. And from your audit?

A. That's right.

Q. And it is correct ? A. Yes.

Mr. Meserve: We offer the balance sheet for
the year 1934 as Plaintiff's Exhibit 57.

The Clerk: Plaintiff's Exhibit 57 in evidence.
(The document referred to was received in
evidence and marked "Plaintiff's Exhibit No.
57.")

156 United States of America vs.

(Testimony of Harry W. Pattin.)
By Mr. Meserve :

Q. And I will show you a profit and loss and
statement of income, December 31, 1934, and ask
you if your testimony is the same as to that as it
was to the one previously identified, except as to the
year.

A. That's right, This covers the year 1934.

Q. What does that show as a result of the
operation ?

A. It shows a net profit of $5191.86.

Q. And no different method of calculation of
income [155] or profit or loss was made in this year
as against any of the preceding years ?

A. No change in the method.

Mr. Meserve: We will offer the document iden-
tified as Plaintiff's Exhibit.

The Clerk: 58 in evidence.

(The document referred to was received in
evidence and marked " Plaintiff's Exhibit No.
58.")

By Mr. Meserve:

Q. I will show you a balance sheet of the cor-
poration dated December 31, 1935, and ask you if
that is a similar document, prepared by yourself,
for that year, as you have testified to as the two
preceding years. A. Yes, it is.

Q. You prepared it?

A. I prepared it after audit from the books
and records of this company.

Q. And it is correct? A. It is.

J. Leslie Morris Co., Inc. 157

(Testimony of Harry W. Pattin.)

Mr. Meserve: We will offer the balance sheet
of December 31, as Plaintiff's Exhibit 59.
The Clerk : 59 in evidence.

(The document referred to was received in
evidence and marked " Plaintiff's Exhibit No.
50.")

By Mr. Meserve:

Q. This is a statement of income and profit
and loss [156] for that same year? A. Yes.

Q. You prepared that, did you,

A. Yes, I did.

Q. From the same method and same form of
procedure that you did for the years preceding,
that you have testified to? A. Yes.

Q. And it is correct? A. Yes.

Q. What does that statement show as to the
operations of the company for the year 1935?

A. It shows a net profit of $6,048.16.

Q. In your opinion that is correct?

A. It is.

Mr. Meserve: We will offer the statement last
identified as Plaintiff's Exhibit.

The Clerk: Plaintiff's Exhibit 60 in evidence.
(The document referred to was received in
evidence and marked " Plaintiff's Exhibit No.
60.")

By Mr. Meserve:

Q. Did you make a calculation as to the per-
centage of gross profits for the years 1931 and
1933? A. Yes, I did.

158 United States of America vs.

(Testimony of Harry W. Pattin.)

Q. T will show you a document and ask you
if that is a memorandum that you prepared in re-
spect to the matters I [157] have just inquired of.

A. Yes, this is.

Q. State what it shows as to the percentages of
gross profits for those two years, and just what
you mean by that !

A. Well, now, I am comparing 1931 and 1933,
1931 being the first full year prior to this tax.

Q. The one involved in this case?

A. Well, prior to the time this tax became a
law, 1933 is the first full year after the excise tax
became a law. The gross profit for 1931 I found to
be 24.5 per cent for 1933, and the gross profit I
found to be 19 per cent, or a decrease or a lower
gross profit in 1933 of 5% per cent.

Q. And that, in face of the fact that the prices
charged by the corporation for its services had
been raised in that period?

A. Yes, despite that. Of course, I went still
further to find out what caused this decrease in
gross profit and it's practically entirely due to an
increase in the cost of materials.

The Court: Those two items are the figures that
should have been included there in the exhibits, I
think 52 and 52, where you made pencil notations,
and did not put in the percentages? There are
some changes here in these exhibits. I am referring
now to Exhibit 52; there has been a change [158]
there in the itemization?

J. Leslie Morris Co., Inc. 159

(Testimony of Harry W. Pattin.)

The Witness : Yes, you see, that is one that was
not prepared by me and the phraseology is differ-
ent from the kind I would use.

The Court: Are these items which you gave in
your testimony last — are they items that should
be included in these various exhibits?

The Witness: Yes, those percentage figures are
based on these figures here.

Mr. Meserve: Cross examine.

Cross Examination
By Mr. Jewell:

Q. What did you mean, Mr. Pattin, by per-
centage of gross profit?

A. Well, if an item sells for $1.00, and costs
65 cents, I would say the gross profit is 35 per cent.

Q. That is excluding depreciation, and so forth,
in your computation?

A. Well, it excludes selling and administrative
expenses. It does include labor on a process and
the material used in the process, and those ex-
penses directly connected with a process.

Q. What other items does it exclude?

A. It excludes selling expenses, salesmen's com-
missions, salesmen's salaries, packing supplies; it
excludes all administrative expenses, like general
insurance, [159] office salaries, officers' salaries, tel-
ephone, certain taxes, bad debts, office depreciation.

Q. You say you made an examination of the
books of the company and found out that the in-

160 United States of America vs.

(Testimony of Harry W. Pattin.)

crease was what? It was due to the increase in

the cost of materials? I didn't catch that.

A. The decrease in gross profit was almost ex-
clusively due to the increase in the cost of mate-
rials rather than labor or certain of these expenses
that I charged to the process.

Q. Are all the books of the various affiliated
branches of Plaintiff corporation kept in this city,
at this office?

A. Not right now. We have changed methods
several times, but right now we do get copies of
the books of original entry from the other branches.

Q. What was the setup when you first started
to perform professional services for Mr. Morris
and the plaintiff corporation?

A. I believe they were all kept in Los Angeles
at that time.

Q. Do you recall what the first change was —
when it occurred?

A. I believe about four or five months after
that; that was when they were separated into the
different branches, and local bookkeepers and local
accountants were [160] employed then.

Q. Any other changes?

A. Well, there have been changes since then.
Now Los Angeles keeps the records for Portland
and Seattle. Chicago now keeps the records for New
York and Columbus as well.

Mr. Jewell: That is all.

Mr. Meserve: That is all.

(Witness excused.) [161]

J. Leslie Morris Co., Inc. 161

J. LESLIE MORRIS

a witness recalled by and on behalf of the Plain-
tiff, having been previously duly sworn, resumed
the stand and further testified as follows:

Direct Examination [163]

Q. Mr. Morris, in your business, in rebabbitting,
do you use old babbitt metal? A. Yes.

Q. As well as new?

A. As well as new, yes.

Q. That is, the babbitt that is on the rod as it
comes in is melted out ? A. Yes.

Q. And you keep it? A. Yes.

Q. And add new to it as it is needed, is that
correct? A. That's correct.

Q. Introduced in evidence in this morning's ses-
sion was Plaintiff's Exhibit 37, a connecting rod
that I understood you to identify as being one to fit
a particular type of Chevrolet, is that correct?

A. '37 Chevrolet.

Q. Are you able to state from an examination
of Plaintiff's Exhibit 37 who the manufacturer of
that rod was?

A. We are more or less familiar with all of the
markings of the car manufacturers, and also other
manufacturers than the car manufacturers. This
rod is marked UC. B. 463." That is the stock num-
ber of Clawson and Bals of Chicago. [165]

Q. Will you spell the first name ?

A. C-1-a-w-s-o-n and B-a-l-s, Inc.

Q. A concern in Chicago? A. Yes.

162 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. Are you familiar with their business to the
extent of having been in their plant ? A. Yes.

[166]
By Mr. Meserve:

Q. In your business, Mr. Morris, did you ever
at any time purchase connecting rods for their
value as junk steel or material atoned

A. I never did.

Q. The only connecting rods that you ever pur-
chased [168] were ones that were either new or
worn at the place where they needed rebabbitting?

A. Correct.

Mr. Meserve: That is all.

Cross Examination
By Mr. Jewell :

Q. How many affiliated plants did you say the
Plaintiff corporation has, Mr. Morris?

A. Affiliated?

Q. Or associated.

A. Do you mean that are not owned by the com-
pany? Is that what you mean, plants that are not
owned by the company?

Q. Over which the company has control, or some
business connection. Tell me about your corporate
setup in connection with other organizations doing
a much similar line of business.

A. This corporation

Mr. Meserve: If I can interpose an objection,
your Honor

J. Leslie Morris Co., Inc. 163

(Testimony of J. Leslie Morris.)

The Court: Subsidiaries and affiliates?

Mr. Jewell: Thus far it was not brought out
on direct examination the type of relationship that
plaintiff corporation has with the other various
business entities shown on the books. They may be
subsidiaries; they might not be. I would like to
know what that connection, or setup, it, [169]

A. The J. Leslie Morris Company, Inc. owns
the plants in New York, Columbus, Chicago, Los
Angeles, Portland, and Seattle.

Q. New York, Chicago, and Columbus'?

A. Columbus, Ohio, Portland, Oregon, Seattle,
Washington.

Q. And Los Angeles?

A. Los Angeles, yes — six.

Q. Those other plants, which you state the
plaintiff corporation owns, are they corporations?

A. No, sir, all in the one corporation.

Q. In other words, you actually own the indus-
trial unit?

A. Yes, it's just a part of this California cor-
poration.

Q. I notice on some of the exhibits — 52, 53, and
54, and so forth, the balance sheets, the names of
some other units: Atlanta, Jackson, Richmond.

A. Jacksonville, Florida, that is. Those plants
have been disposed of by the company. They were
disposed of in — I will have to ask my accountant
on that; I think it was 1931.

Q. I am looking at the 1931 return.

164 United States of America vs.

(Testimony of J. Leslie Morris.)

A. Yes.

Q. I see the name of the Atlanta unit appears on
the balance sheet for 1932, so you must have dis-
posed of it [170] some time during the year 1932,
is that correct*?

A. I can't answer that, Mr. Jewell. You will
have to ask my accountant to refer to the books.

Q. Anyway, you don't own it now?

A. We do not own it now, no, sir. It was either
'31 or '2, but I can't remember the exact time.

Q. These pictures, and the legend affixed be-
neath, relate your testimony of the process as it
existed during the taxable period here involved, at
1361 South Hope, Los Angeles, California.

A. Yes.

Q. What line of business is your corporation
engaged in in New York?

A. The equipment is much less.

Q. How about Chicago.

A. Chicago is better organized, and the equip-
ment is just about identical with Los Angeles.

Q. Do you mean identical in size?

A. The tools, I mean; yes, identical in size. It
has not the floor area; it is considerably smaller in
floor area, but the same operations are done, and
we babbitt just about the same number of connect-
ing rods there as we do in Los Angeles.

Q. About what size would you say your shop is
in Los Angeles?

J. Leslie Morris Co., Inc. 165

(Testimony of J. Leslie Morris.)

A. I think it is 50 by 85, or thereabouts. That
[171] does not include, of course, parking space
out in front.

Q. Is it the largest as to floor space?

A. Yes, very much the largest one.

Q. Your physical offices are here in Los An-
geles ?

A. Yes, it is a California corporation ; we started
here.

Q. What is this establishment that you have
out here in Boyle Heights?

A. That is crank shaft grinding and engine
bearings.

Q. That is all that you turn out over there?

A. That's right.

Q. Do you have any warehouses, outside of the
particular production units?

A. Operated by ourselves?

Q. Yes. A. No.

Q. Do you store in any warehouses?

A. We do store in warehouses, yes.

Q. Will you tell me where those warehouses
are?

A. Yes, they are in Boston, Philadelphia — I am
trying to get them in order so that I won't miss
one: Kansas City, Minneapolis, New Orleans. They
are handled by salesmen, and he just works on a
commission. We have no part of the management
of the business there at all.

Q. But you rent the warehouse?

166 United States of America vs.

(Testimony of J. Leslie Morris.)

A. No, merely on a commission. That is the
usage that [172] obtains in this business very gen-
erally, that these automotive warehouses are set
up to supply wholesalers in that vicinity, and they
are usually operated independently entirely, and
the rental for the space and the service is based
entirely on the sales; so much commission on sales.

Q. Do you mean rent for the space and service
in the warehouse*?

A. Yes, receiving stuff, shipping out, and so
on; they handle it on a commission on sales.

Q. These salesmen handle them on a consign-
ment basis? A. Do you mean the warehouse?

Q. Yes. A. We have only a small stock.

Q. How many would you say approximately
you have in each warehouse?

A. Approximately I would say we probably
carry, from the largest warehouse stock, which is
Minneapolis, probably 500 connecting rods to may-
be New Orleans, which is a small one, 75 or 100.

Q. Of course, you keep stock at each of these
other plants, New York, Chicago, Seattle and Port-
land?

A. Yes, the necessary stock. Of course, there is
quite a variance in the volume of business done in
these places, and the stock is usually in proportion
to the amount of business done.

Q. Do you have any idea? Is the stock similar?

[173]

J . Leslie Morris Co., Inc. 167

(Testimony of J. Leslie Morris.)

A. The stock in Chicago is very similar as to
the stock I observed as in Los Angeles. In other
places it probably ranges from half that size down
to maybe 20 per cent of that size.

Q. How many employees did you employ in
your Los Angeles plant during the taxable period?

Mr. Meserve: I will object to that unless he
means at any one time. Then I don't know what
the materiality of it is.

Mr. Jewell: I will say approximately the aver-
age during the taxable period, in the Los Angeles
plant ?

Mr. Meserve: May I finish?

The Court: I didn't hear what you said, Mr.
Meserve, at the end?

Mr. Meserve: I said if it was at any one time,
because he could have one man perform the one
service and quit every day, and still total his num-
bers.

Mr. Jewell: I will take an average.

The Witness: Actually working in the shop in
Los Angeles here?

By Mr. Jewell:

Q. In your whole unit.

A. That is, both the shop department, office
and all?

Q. Yes.

A. It would range right around 20 a day dur-
ing that [174] period.

168 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. Approximately how many of those would be
in production?

A. I would say 12 or 14. That would include
shipping and receiving.

Q. How about New York? How many approxi-
mately do you employ?

A. It employs three people.

Q. Chicago about the same as Los Angeles?

A. Not quite as many. I would say 18. If Los
Angeles had 20, Chicago at that time would prob-
ably be operating 18.

Q. Seattle? A. Seattle two.

Q. Portland!

A. Three. Correction there ; three in the shop at
Portland, and the young lady in the office would
be four.

Q. In these warehouses which are maintained at
various points you consign the rods to the salesmen
there for stock?

A. Those small stocks that the salesman carries,
yes, they belong to the company.

Q. They are consigned? A. Yes.

Mr. Jewell: If the Court please, I would like
to confer with counsel for a moment. [175]

The Court: I will ask a question along that
line: How is the transaction affected in Seattle, we
will say, if you only had three employees in the
shop, or in Portland, I believe you said you had
two; suppose a man wants to obtain one of these
processed rods, and he has one that is damaged or

/. Leslie Morris Co., Inc. 169

(Testimony of J. Leslie Morris.)

injured, what is the method of transaction there?

The Witness : Just the same as here, sir. He
comes in. Of course, we carry a much smaller
stock, so we babbitt a great many more in propor-
tion to the sales there, but the sales are much
smaller.

Q. Let us take Boston, where you said there were
warehouse facilities, but no shops. A. Yes.

Q. What is the method there?

A. The rod is exchanged when it is brought to
the counter.

Q. What is done with the rod obtained from
the customer?

A. It is sent to the nearest branch that is
equipped to do the work of babbitting.

Q. There is no way in those places, where there
is merely a warehouse facility, to obtain back the
identical processed rod that is delivered to the com-
pany?

A. Obtain back for the customer, do you mean?

Q. Yes.

A. No, we can't babbitt the rod and give him the
[176] same one back. We usually make arrange-
ments, however, with some shop in town to do that
work for us, because it is very necessary sort of
thing everywhere, and we have arrangements in
nearly every city with some machine shop that
will do that work for us, for an emergency.

Q. What would be the emergency?

170 United States of America vs.

(Testimony of J. Leslie Morris.)

A. A set of connecting rods would come in to be
babbitted, let us say undersized, to fit a crank shaft
that is ground. They couldn't wait to send them all
the way to Chicago or Boston, so we would have
to send them out to be babbitted by a machine
shop in Boston.

Q. You may or may not have them in stock in
the warehouse?

A. We couldn't possibly, because the crank
shaft varies so much. They merely clean up the
imperfections in the crank shaft, and stop there,
so we sometimes have a crank shaft with six dif-
ferent sizes of connecting rods on it.

Q. Approximately what size inventory did you
carry in your Los Angeles plant during the taxable
period, on an average?

A. I will have to say I don't know. We have
the inventory, and I would much rather

Q. Those books will show then, the audit?

A. Yes.

Mr. Jewell: The number of rods? [177]

The Court: No. Probably it wouldn't show the
number but it would show the value.

A. The value, yes.

By Mr. Jewell:

Q. You rebabbitt about 400 rods a day down in
your Los Angeles plant? A. Yes.

Q. There was introduced a catalog, 1933, which
you stated you sent around to the various supply

J. Leslie Morris Co., Inc. 171

(Testimony of J. Leslie Morris.)

houses. Is that your method of advertising, — to

distribute the catalog to the various supply houses?

A. Yes, to those who are dealing with us. We
don't usually send our catalog promiscuously to
everyone, but to those wholesale supply houses who
are sending their rods to us for rebabbitting ; we
keep them supplied with information data.

Q. What methods do you use for expanding
your business, Mr. Morris, for getting new cus-
tomers I

A. Well, in the past we have depended very
largely just on the service we have rendered. We
haven't employed a salesman, if that is what you
mean, for Los Angeles and the Coast plants, and
the salesmen who represent these warehouse stocks
we have referred to are rather active in their terri-
tory in which the warehouse stock is located. It is
very frequently a combination of the salesmen, and
a place to carry stock. Of course, he is working for
a great many [178] other accounts besides ours.
He is a combination commission salesman, and
probably represents three or four different auto-
motive people with services, and he calls on these
wholesale accounts, but at no particular direction
from us, because he is independent, on a commis-
sion.

Q. Who does the solicitation?

A. We don't use solicitation at all. These folks
here I have done business with almost 20 years, and
I contact them every once in a while on the phone,

172 United States of America vs.

(Testimony of J. Leslie Morris.)
or they contact me. We don't find it necessary. I
make a trip occasionally around in the machine,
but it is more or less in the nature of a visit.

Q. You don't go out and solicit new customers'?

A. No; there have been very few customers
who have come into existence in the last few years ;
among wholesalers, I am speaking of, which, I said
represent about 85 per cent of our business.

Q. Is your firm, or are you yourself a member
of any manufacturers' association? A. No.

Mr. Meserve: I object to that as immaterial,
your Honor. I don't know what purpose that can
serve, whether he belongs to an association of manu-
facturers, or the Chamber of Commerce, or any-
thing else. I can't see that that means anything.

Mr. Jewell: I think the cases have held, your
Honor, [179] that the whole manner of general con-
duct of a corporation, how they do business, and
whether or not they hold themselves out as manu-
facturers, are all material things.

The Court: Overruled.

By Mr. Jewell :

Q. Are you, Mr. Morris — is your corporation,
or are you a member of any manufacturers asso-
ciation? A. Any manufacturers association?

Q. Or association of people connected with your
same line of business.

The Court: Trade association.

The Witness : Yes, we belong to the L. A. Auto-
motive Trade Association.

J. Leslie Morris Co., Inc. 173

(Testimony of J. Leslie Morris.)
By Mr. Jewell :

Q. Any other association ?

A. Yes, I think the branch in Portland is affili-
ated with the Automotive Trade Association.

Q. What type of membership make up the L. A.
Automotive Trade Association?

A. Garages, wholesale merchants and suppliers.

Q. In one of these illustrations the legend states
that on about half of the rods, in order to prevent
the nuts and bolts from becoming tinned, it is
necessary to use auxiliary nuts and bolts while the
rod is being tinned ? A. Yes.

Q. And that the rods and nuts and bolts are
removed [180] and thrown into a box and later
replaced in the place of the auxiliary nuts and
bolts? A. Yes.

Q. When that is done there is no effort to keep
the nuts and bolts separated so that they go back
into the exact same car or rod, is there f

A. No.

Q. No effort whatsoever?

A. No. They have to go back to Chevrolet rods
because they fit Chevrolet rods, but they don't go
back into the same Chevrolet rod. I might add that
there is no identification mark on the bolt ; it would
be very difficult to do it anyway.

Mr. Jewell: For the purpose of the record, that
is Plaintiff's Exhibit No. 5 to which I refer.

The Court: The same bolts, however, and nuts,
however, that are taken off of the appliance and

174 United States of America vs.

(Testimony of J. Leslie Morris.)
thrown into the receptable, when the process is
finished, or is completed, so far as that particular
movement is concerned, are replaced I

The Witness: Yes.

The Court: But they might not get into the
same thread or the same hole ?

The Witness : That is right. [181]

By Mr. Jewell :

Q. I believe you testified on direct examination
many times that garagemen come to your place and
leave the rod and come back and pick up the same
rod. It is my understanding that you very rarety
do business with garagemen; that all your business
is with either jobbers or large firms who have truck
or auto fleets of their own, and dealers ?

A. That is true. Invariably this garageman
brings a requisition from the wholesaler. He goes
to the wholesaler's place and expresses his wishes,
and wants, and they send him over to our place, and
he presents a requisition from the wholesaler to per-
form the work on this rod.

Q. I understand, Mr. Morris, that some of the
rods which you rebabbitt need shims, and a certain
type of rod comes originally with a shim, and when
you rebabbitt it you remove the shim. Do you re-
place that shim with a new shim?

A. We replace it with a new shim. There are
not a great many rods using shims. Shims are ten
years or more back, but there are a few rods which

/. Leslie Morris Co., Inc. 175

(Testimony of J. Leslie Morris.)

use shims. When that happens, we put the shim in

the place of the one we remove.

Q. Who are these people you speak of, from
whom you obtain your supply of used rods? Give
me the name of a few of them. You said Mr.
La Vine?

A. Yes, of used rods; A. L. Klein, Chicago, I
think, sell quite a few used rods. Let me see if I
can think of another one. Yes, we have a man by
the name of Wilson here [182] in the city of Los
Angeles; his initials I cannot give you without ref-
erence to the book. He brings in some rods occa-
sionally.

Q. Does he have a wrecking business?

A. No, he is a broker, you might say. The rods
he knows we will buy are rods that have come out
of insurance wrecks because, in other words, it is
only a wrecking establishment wThich handles cars
that are wrecked on the streets, late model cars
are usually covered by insurance, and he knows
what these are, and those we are anxious, for in-
stance, to buy such as some 1940 Chevrolet connect-
ing rods. The reason that he gets that type of rod
is because he knows we will pay more for it than
a rod back five or six or seven years.

Q. Is Mr. LaVine also a con. rod broker?

A. That's right,

Q. He is located here in the city?

A Here in the city, yes

Q. I show you Plaintiff's Exhibit 43, being bills
from Mr. LaVine, and ask you whether or not

176 United States of America vs.

(Testimony of J. Leslie Morris.)

these numbers on the left, those three digit numbers

are your code numbers.

A. They are our identifying numbers in the
catalog, yes.

Q. That is the way his bills are made up to
you?

A. The way his bills are made up, yes. [183]

Q. By taking your price sheets, a comparison
can be established between the price that you pay
for the old rod and what you get for it ?

A. That is right,

Q. I believe you testified that the automobile
manufacturers also do rebabbitting % A. Yes.

Q. For their dealers ? A. Yes.

Q. Do you know whether or not they do re-
babbitting for anybody else ?

A. No, I do not. I couldn't answer that,

Q. Do you know whether or not, when they re-
babbitt a rod which is sent to them, whether or not
they treat it as a new rod ?

Mr. Meserve: I object to that as calling for a
conclusion of the witness, as to what somebody else
does with their rods.

Mr. Jewell: I asked him if he knew, if the
Court please.

Mr. Meserve: It is still a conclusion; it is im-
material.

The Court : What does that mean, is that treated
as a new rod %

Mr. Jewell: Are they sold and boxed— sold at
the same price that they sell a new rod? [184]

J. Leslie Morris Co., Inc. Ill

(Testimony of J. Leslie Morris.)

The Court: You mean separate and apart now
from the vehicle that they did sell originally with
the rod in it?

Mr. Jewell: Yes.

The Court: A replacement part, do you mean?

Mr. Jewell : That is right.

The Court: Overruled.

Mr. Jewell: Will you read the question?

(The question referred to was read by the re-
porter, as set forth above.)

The Witness: I would say that most of the car
manufacturers keep the division of stock divided
very definitely. The rebabbitted rods in their stocks
are spoken of and sold as used and rebabbitted rods.
You will find many requisitions from us to car deal-
ers which stipulate across the bottom: These must
be new factory rods; so that's why I know; we
want to get those rather than rebabbitted rods.

Q. Have any dealers ever sent you any re-
babbitted rods ?

A. Yes, sometimes they have sent some of our
own, which we have rebabbitted for them.

Q. That occurred on occasions when you wanted
to purchase rods to keep your supply built up to
facilitate your exchange service?

A. That's right.

Q. They have shipped you one of your own
rods?

A. They have shipped us a great many of them.
We have [185] got them back many times.

178 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. Sometimes the rod is rebabbitted by you for
a Ford or a Chevrolet ? A. Yes.

Q. So, so far as a sale to a customer is con-
cerned, they made no distinction between the rod
which you rebuilt and the rod which was not?

A. I would say they did, sir; they keep these
rods that have not been rebabbitted as new stock
in most cases. Now, I am only speaking of my
knowledge, that is all; I wouldn't say definitely, but
my knowledge is that when you want a new con-
necting rod from the factory you must ask for
that particular thing, and in a great many instances
they are not readily obtainable, because they don't
carry new stock. There is no occasion for it, A rod
does deteriorate, and they constantly babbitt them
over; they have for the last ten years or so. Most
of the car dealers have their rods rebabbitted lo-
cally; they don't attempt to send them back to the
factory at all, because they have a lot of freight to
take care of.

Q. On those occasions when they send them to
you in response to one of your orders, when you
were trying to build up your exchange stock by
outright purchase of rods from the dealer, when
they sent them to you, did they charge you the same
price for those rods which they did for others that
had not been rebabbitted ? [186]

A. That would vary with the manufacturer. I
did not know I was going to be asked these ques-
tions. I think as a rule the prices are the same.

J. Leslie Morris Co., Inc. 179

(Testimony of J. Leslie Morris.)

Q. Whether they rebabbitt or not?

A. As a matter of fact, they sell very few con-
necting rods. It is always the exchange items. When
they exchange a new one for a rebabbitted one, the
charge of rebabbitting is just the same. If in a Chev-
rolet you happen to get a new one you are just
lucky. That is all in the exchange process.

Q. I was speaking, and I assume that you were
speaking, of an occasion not when you were ex-
changing a rod with one of the dealers which, of
course, you would not do, but an occasion when
you had no rod and you needed a rod so that you
would have one to deliver to one of your customers,
and you went to the dealer and you made a pur-
chase, and he gave you, in response to that purchase
order, when there was none turned in on your part,
of an old rod — he gave you a rebabbitted rod — at
that time did he charge you the same price as he
would for a new one ?

A. Yes, I think it would be just the same.

Q. I haven't looked through all your catalogs
here, and price lists. Do you give any guarantee
with your product?

A. Yes, we guarantee the bearing.

Q. What type of guarantee?

A. Against defective workmanship and mate-
rial. That [187] is a very characteristic guarantee in
this industry.

Q. When you go to an automobile dealer to pur-
chase rods, to supply your stock inventory, and

180 United States of America vs.

(Testimony of J. Leslie Morris.)
you purchase new rods, or rebabbitted rods, which-
ever they deliver to you, could you, if you so chose,
as part of the price you pay for those rods, give
to them a used connecting rod ?

A. Do you mean they exchange rods }

Q. Yes.

A. Oh, yes, they exchange rods every day; the
car dealers do.

Q. They will exchange them with you as well
as with anyone else ? A. Oh, yes.

The Court: When you say, "car dealer,' ' do
you distinguish dealers in new cars from the others ?

The Witness: Yes, I always mean the new car,
sir, because that is the only place wThere there is
a reservoir of parts kept. Second-hand dealers do
not carry any new parts at all. I am speaking of
people like the Howard agency, the Buick agency,
and the Chevrolet.

Q. What would be the occasion or necessity for
the new car dealer to have a rebabbitted connect-
ing rod?

A. Because the cost of rebabbitting a connecting
rod is — I don't know how to get the average, but
let us say a Studebaker costs, for rebabbitting a
Studebaker connecting rod about one-third of the
cost of the whole unit. [188]

Q. I am speaking of the car that comes from
the factory to the local salesman, of the new prod-
uct, what would be the reason for that salesman,
seeking an exchange of a connecting rod that is in

J. Leslie Morris Co., Inc. 181

(Testimony of J. Leslie Morris.)

the vehicle as it comes to him from the factory —

what would be the occasion of exchanging that for

rebabbitting?

A. It may have failed in the service. I don't
think you are clear on it. The car dealer, in addi-
tion to selling new cars, has a parts department,
where he has the component unit of every one of his
automobiles over the various years. The usual prac-
tice in the trade is about three or four years to
carry all those component units. He is selling them
every day to the garagemen, even to the consumer
who wants to install his own frequently, he will sell
a man a part of his automobile. So the garageman
can go to a car dealer with a broken connecting rod,
just as he can go to Chanslor & Lyon, or the West-
ern Auto Supply Company and exchange the con-
necting rod with the car dealer.

Q. That is limited, however, to the stock of the
individual appliance he has in his business; it does
not pertain to these used vehicles he sells %

A. No, the vehicle he sells is a unit of itself.
The only time one of these connecting rods is ex-
changed is when there is a failure, and he finds it
necessary to replace it.

Q. If one is buying a new car, the presump-
tion is [189] that he buys it new\

A. The connecting rod, and everything that goes
with it.

Q. He doesn't buy a revamped connecting rod?

A. No, definitely no.

182 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. So he buys what pertains to those in stock,
not as part of the car, is that right ?

A. As you buy an automobile, it has, of course,
all new parts throughout, It is all brand new. Now,
you can go to the parts department in that same
car dealership from which you bought the new car.
The new parts department is not on the sales floor,
where they sell new automobiles, but it is a parts
department, where they stock connecting rods for
that car. A man has a failure of a connecting rod.
Let us assume that his automobile was purchased
two or three months previous to the time he had the
failure of the connecting rod. He can go back to
the same dealer from which he purchased his new
car, and offer the connecting rod in exchange, and
the car dealer will give him an exchange, just the
same as the wholesaler, for a single unit,

Q. To replace one that has been damaged or in-
jured or affected in some way which counsel has
described ?

A. Yes. So the car dealer maintains the same
exchange service as the wholesaler does for the ga-
rageman.

(Whereupon, at 4:30 o'clock p. m. an adjourn-
ment was taken until Wednesday, May 29, 1940,
at 10.00 o'clock a. m.) [190]

J. Leslie Morris Co., Inc. 183

(Testimony of J. Leslie Morris.)

Los Angeles, California
Wednesday, May 29, 1940
. 10:00 O'Clock A. M.

J. LESLIE MORRIS

the witness on the stand at the time of adjourn-
ment, having been previously duly sworn, was ex-
amined, and further testified as follows :

Cross Examination
(Continued)
By Mr. Jewell :

Q. Mr. Morris, do you recall in the building up
of your supply bank of rods, wThen you purchased
some of the rods new from people like J. V. Bald-
win, and so forth, and purchased some of the rods
on which the babbitt had been worn out, do you
recall about what percentage you purchased from
each of each type, the new and the worn out rods?

A. I would rather refer to the records, but I
would say roughly about half.

Q. You testified yesterday that during this par-
ticular tax period that you used some methods of
aligning rods. Will you describe that method?

A. The different ones? There were several dif-
ferent ones.

Q. You tried several different methods'?

A. Yes.

Q. In other words, you were attempting to align
[191] rods?

A. Yes, we were attempting to align rods.

Q. What were those methods?

184 United States of America vs.

(Testimony of J. Leslie Morris.)

A. We used just the ordinary aligning features
which are commonly in use in all garages.

Q. What are they?

A. They consist of a surface plate, we call it,
and you place the rod in the middle, and that oscil-
lates the same as a crank shaft in an automo-
bile in which it is going to be installed. The idea
is to have the piston side — the side of the piston
at right angles to the axis to this member which
clamps the connecting rod on. It is a little testing
stand, which is commonly used in garages.

Q. In these tests, when it was out of alignment,
how did you realign it ?

A. In this test, if it is out of alignment, there
is a tool that comes with it, with the aligning jigs,
and it looks very much like a wrench, and you give
it a twist to correct the few thousandths it may be
out of alignment ; just twist it over beyond the point,
and it comes back to the point.

Q. What other method is used %

A. We always used the same method, except to
determine if you have gone far enough. It was
not very successful, the one where we introduced
the switch; we had a light, and when you got it
right — it was an apparatus, instead of [192] going
in with a feeler gauge and checking it, we would
go in with the light. That was not successful, because
in the contact with electricity the point burned off,
and the rod wouldn't be in perfect alignment, We
realized all of a sudden that the garagemen had to

J. Leslie Morris Co., Inc. 185

(Testimony of J. Leslie Morris.)
repeat the same operation exactly when he attached
the piston to it, so there was no need for us to
align them.

Q. I believe you testified on direct examination,
when you sold one of your rebabbitted rods to a
person or company, who did not have any exchange
rods to turn in, that you charged them for the re-
babbitting, and also for the shank, but that you took
the amount of the purchase money allocable to the
payment on the shank, and placed it in a deposit
fund ; is that or is that not correct ?

A. That went in with our general receipt, but
we wrote up the invoice to show that the rod was
either used, or the word " complete/' which meant
they were to collect the refund when they brought
in the exchange connecting rod. We always do that.
As a matter of fact, it is all a charge account. We
don't put it into the fund, because 98 per cent of
our business is done on open account with the ac-
count with whom we deal, so there is actually no
fund. We receive the cash. We receive very little
cash during the month. Cash comes in in the form
of checks and is usually paid around the tenth of
the month following the purchase.

Q. In that case, when the payment was made at
the end [193] of the month, you take the whole
amount and put it in a general sales fund at the end
of the month?

A. As a matter of fact, the whole amount
wouldn't come in, because we would have issued a

186 United States of America vs.

(Testimony of J. Leslie Morris.)
credit against the rods. In most instances, the last
few days of the month, the payment you make might
be applicable still during the month. Generally we
would issue a credit, so the net amount would be
the only amount which stood on the books.

Q. When you received payment for the net
amount on the books, you put it all in one fundi

A. We put all our receipts in one fund.

The Court : Do you set up a separate fund to take
care of the contingencies that might arise on the
credit you extend generally?

The Witness: You might say the whole fund
takes care of contingencies. We do not receive cash.
The cash we receive is usually for rebabbitting we
have done for the connecting rod because the cus-
tomer who has been charged two or three dollars,
or whatever the book shows, in addition to the re-
babbitting charge, invariably hastens to get those
rods right back to you.

The Court: Would the whole transaction be en-
tered as one transaction, or as separate items?

The Witness: No, we always deposit our money
to the bank account, and issue a credit.

The Court: I think counsel is trying to get at
the [194] segregation of those two features of the
deal, the transaction.

The Witness: It is practically all bookkeeping.
We charge out for the babbitting, and the deposit,
as we call it, to insure the return of similar forg-
ings that we may have in stock, that charge is placed

J. Leslie Morris Co., Inc. 187

(Testimony of J. Leslie Morris.)
against the account, and invariably before the end
of the month, within two or three days the corre-
sponding forging, exactly alike, corresponding to
the connecting rod, will come back to us for credit.
In most instances they won't pay the bill unless all
the credits due on the returned connecting rod are
applied to the payment.

The Court: So far as your accounting is con-
cerned, you set it up as one transaction; you don't
segregate your potential refund or credit from the
amount of the sale you make 1

The Witness: No, we just make a full charge,
and refer the invoice number to the customer. That
invoice number states a certain amount against the
customer, and when we make the credit, we refer
back to the invoice number, and credit four or six
connecting rods, and return the refund, two or three
dollars, or whatever it may be. It is all bookkeeping.
It is the net amount on the payment the customer
makes at the end of the month, when he cleans
it up.

The Court: I don't know whether that clears up
what is in your mind. It does in the Court's mind.

[195]

Mr. Jewell: I believe it is clear. I would like to
ask this question : In a case where one of your cus-
tomers doesn't return as many rods as he has re-
ceived ; that is, where he has actually purchased not
only the rebabbitting and the shank and everything,
and hasn't turned any back, so his net amount at
the end of the month includes the price for some

188 United States of America vs.

(Testimony of J. Leslie Morris.)

shanks, do you take that net amount and put it into

one account ? A. Yes.

Q. And you keep no separate deposit %

A. No.

Q. I show you, Mr. Morris, several invoice slips,
— four to be exact, which are clipped together, and
ask you to identify them.

A. That is the invoice as we render it to the
customer.

Q. The invoices reading: "Moroloy Bearing
Service," four of them clipped together, I would
like to introduce on behalf of the Government.

The Clerk: Government's Exhibit A in evidence.
(The document referred to was received in
evidence and marked " Government's Exhibit
A.")

653 V/. 35TH ST.
NEW YORK. N. Y.

296 IVY ST.. N E.
ATLANTA. GA.

£21 N.W. TENTH AVE.
PORTLAND. ORE.

Sold to

189

INVOICE

OROLOY BEARING 5 RVICE

J. LESLIE MORRIS CO., INC.

1361 S. HOPE ST.
LOS ANGELES. CALIF.

10 S. DAVIS ST.
JACKSONVILLE. FLA.

606 SANTA FE DRIVE
DENVER. COLO.

1516 THIRTEENTH AVE. W.
VANCOUVER. B. C.

2714-16 S. STATE ST
CHICAGO. ILL.

310 N. LAUREL ST.
RICHMOND. VA

2354-56 VALLEY ST
OAKLAND. CALIF

Branch

1934 BROAD ST.
REGINA. SASK

1520 TENTH AVE
SEATTLE. WASH

162 N FOURTH ST.
COLUMBUS. OHIO

/_

Address

-^-

Ship to.

Customer's
Order No /^

QUANTITY STOCK NO.

DESCRIPTION

/

f

FOH THH rJiN •

FJJLJEI)

MAR 2 7 1941
PAUL P. O'BRIEN

CLERK

Ko ^S^HL^ \

VS.

Clerk]

THIS IS YOUR INVOICE. WE DO NOT ITEMIZE AGAIN

wW st accaptao* lor oradit
late of invoiea
tssss Mtsss returnad or ioco jut •( sstsg i
sMs. ■• olaims allowed attar 11 Says fro* date of in voire.

•adit saltos returnad with our permit! ion. Traaaporlatloa ohargst atatl ' " r\ 1 / f J / ^ X

ny foots. A W* oharia to oovar handling will be made oa sll roturi.j* * ,w# J- t- W fc- v^ W
•I SOiag defective or orror on our part. «oodt made to ordar ara unreture-

2742* NllOItt lALtieOOlt CO.. LINCOIN-CHICIEO 400 H . HICM. *VI PHOWf 1*44

J . Leslie Morris Co., Inc. 191

(Testimony of J. Leslie Morris.)

The Court: These items on the invoices, Exhibit
A, Mr. Morris, I observe on two of them there are
items: "Extension" only, and on the others, "Ke-
bab." What is the difference between those two
transactions? For instance, [196] the last one has
under "description," "Complete."

A. "Kebab" indicates the article. "Extension"
means that the rods were received by us to be re-
babbitted. We rebabbitted them and returned the
rods to the customer. That was the only transaction.
Now this is complete.

The Court : That is the last one ?

The Witness: That is the last one. We have
listed the same parts exactly as we would have
charged had the rods come in before the rebab. He
gave us a deposit, because the rods did not come in.
We segregated it that way, and so the customer can
readily check his credit memorandum when he gets
them back later on. This rod will come in; presum-
ably 98 per cent do. This rod will come in for credit.
We refer to the invoice number so-and-so, and say,
"Crediting your account $1.80." This indicates that
the connecting rod wrent out of our stock without
exchange. This indicates the rod was handed to us
to be rebabbitted.

The Court : What is the difference under the de-
scription "Complete"?

The Witness: "Complete" means the connecting
rod and the labor operation we have done on it.
We have some accounts we loan rods to and so state,

192 United States of America vs.

(Testimony of J. Leslie Morris.)

"Rods loaned." But that is the only point. Is that

clear?

The Court: Yes.

By Mr. Jewell :

Q. Yesterday, Mr. Morris, I believe you testified
[197] concerning certain other plants which you
have in various cities in the United States, and I
notice here on the top of the invoice, Defendant's
Exhibit A, that there are several places listed which
you did not mention yesterday; more specifically,
Denver, Colorado.

A. An affiliated one, that we never owned.

Q. Vancouver, B. C.

A. Another of the same sort.

Q. Saskatchewan ?

A. No, we never owned that at all.

Q. Regina, Saskatchewan?

A. Affiliated only. They pay no royalties at all.
The others have paid royalties. I think one plant
paid us a royalty — that is, similar to a royalty.
They paid for the plant one per cent on what they
did; in other words, the terms of it were based on
the percentage of what they did. That was the one
in Denver; but the only affiliation was, we sold
them the mold, and stuff like that, to cast bearings,
way back in the '20 ?s.

Q. Did you build any of the plants in Denver?

A. No; we furnished some of the stuff, like
molds, and things like that. That was in '27, I think.

Q. Did you build any of the other plants?

J. Leslie Morris Co., Inc. 193

(Testimony of J. Leslie Morris.)

A. Of the affiliated plants ?

Q. Yes.

A. No, we didn't build them and sell them, if
that [198] is what you mean. We just sold them
certain tools.

Q. After you sold them certain tools, what were
your business relations with them which justified
their name being on your invoices ?

A. They bought tools from us. It was rather an
inducement to get them to buy our tools. We were
trying to build, with a small capital, what would
look like a national service. That was the purpose
of it, and why we adopted the word "Moroloy,"
meaning "Morris" and "alloy." That was the pur-
pose of it.

Q. Did you sell them any rods ?

A. No rods.

Q. Their names then were merely on these in-
voices because of the fact that they were using the
method you had designed %

A. Yes, and they were using the word "Moro-
loy" which had probably some national value; and
they were using it.

The Court: You spoke about a royalty. I didn't
quite understand what you mean.

The Witness : In the sale of the Denver plant —
I guess I shouldn't have mentioned it — the deal at
the Denver plant was that the young man from Los
Angeles had very little funds, and rather than hav-
ing a definite amount each month, he agreed to pay

194 United States of America vs.

(Testimony of J. Leslie Morris.)
a percentage on what he did until the amount of
the sale was complete. We kind of called that a roy-
alty for a while. There was one plant, the Oakland
plant, which [199] we sold earlier, which pays us
definitely a royalty of two per cent on their rebab-
bitting each month. Those are the two. The Denver
plant has long since paid out, and pays us no more.
During this period, however, the only period we are
speaking of, the only plant from which wTe were col-
lecting royalty was the Denver plant. We were not
collecting any royalty from the Oakland plant at
that time.

The Court: At the time with which we are con-
cerned here, was this process patented?

The Witness : No, sir.

The Court: Or was the method patented?

The Witness: No, sir. We used common tools,
the same as anyone else uses for the same purpose.
There are three or four concerns in towrn that use
the same type of tools.

Q. This compound word "Moroloy," was there
a patent on that product ?

A. The name was copyrighted, sir.

Q. But the process you utilized in servicing wTas
not a patented process ?

A. No, sir, and the name, I might say, was origi-
nated around '20 or '21, when we had no thought
of babbitting connecting rods at all. We were mak-
ing an entirely different article, a little detachable
bearing that was detached from the connecting rod ;

J. Leslie Morris Co., Inc. 195

(Testimony of J. Leslie Morris.)
in fact, that was the usage at that time among car
dealers. We started babbitting connecting rods about
'22 or '23, as I recaU it. [200]

By Mr. Jewell :

Q. Do you know, Mr. Morris, in setting up your
inventory, what price you evaluated the stock at,
which you have on hand ?

A. Roughly, I know.

Q. Was it at the price at which you sold whole-
salers ?

A. No, we discounted that, of course. Very few
people carry inventory at the selling price. It is
usually the cost.

Q. At what price do you carry yours, do you
know?

A. I couldn't answer that. I would have to ask
our accountant to help me out.

Q. Are you familiar, Mr. Morris, with the meth-
ods of doing business of various rebabbitters ?

A. More or less, yes.

Q. Would you say that rebabbitters, whose busi-
ness you are familiar with, handle their sales and
exchanges more or less in the same manner?

Mr. Meserve: I object to that, your Honor, as
incompetent and immaterial; not proper cross
examination, and of no evidentiary weight in this
case.

The Court : Well, it may be. There are some fea-
tures of the business under scrutiny here that are
unique, I think, and in fact, matters we have a right

196 United States of America vs.

(Testimony of J. Leslie Morris.)
to make comparison of relative to other activities
that are similarly engaged in the business. It is no
conclusion, of course. The problem [201] here is to
determine whether this is a manufacturer or some-
thing else, but analogies are helpful in tax matters,
because there is supposed to be uniformity of levy.
The theory of the tax laws is to bring about uni-
formity ; every citizen must be treated the same with
reference to the same character of activity. Over-
ruled. Read the question.

(The question referred to was read by the re-
porter, as follows :

"Q. Would you say that rebabbitters, wThose
business you are familiar with, handle their sales
and exchanges more or less in the same manner ?")

The Witness : Yes.

By Mr. Jewell :

Q. In other wTords, most rebabbitters will take
in the old in exchange ?

A. Yes. We were all drawn very closely together
during the N. R. A. days, and virtually the method
of procedure which Baudet used in San Francisco
was the same as mine; same as Hempe-Cooper, in
Kansas City; Conrad Exchange; Seattle Exchange;
there were some shops, of course, wThich did not
come into the N. R, A., and I wouldn't presume to
state what their methods were; but we got a very
good insight into each other's business at that time.

Q. With respect to the particular method of

e7. Leslie Morris Co., Inc. 197

(Testimony of J. Leslie Morris.)

handling customers, most rebabbitters did that in

the same way ?

A. Yes. The Federal Mogul, one of the largest
in [202] the United States, they handled them in
exactly the same way we did.

Q. These automobile manufacturers, when they
did rebabbitting, as I believe you testified, they also
handled their rebabbitting on an exchange basis?

A. Yes.

Q. I believe you testified a moment ago, in re-
sponse to a question from the Court, that about 98
per cent of the time the customer returned an old
rod. Not to be quibbling, but merely to determine
if there is some other element which has not been
directed to your attention, you also testified that
about five per cent of the rods which you sold per
month were ones which you had to purchase.

A. I think I said " about" in each instance.

Q. Ordinarily those two

A. They should very nearly tally. I left a gap
there of about two per cent.

Q. Mr. Morris, would you tell us what babbitt
consists of — the type of babbitt that you use?

A. The kind of babbitt we use consists of from
88 to 90 per cent tin, and the other two component
parts, copper and antimony, in varying proportions ;
from 88 to 90 per cent tin, and the two other com-
ponent parts, being the copper and antimony, vary-
ing; in other words, 88 per cent of tin would have

198 United States of America vs.

(Testimony of J. Leslie Morris.)
about six per cent of copper; 90 per cent of tin
about three and a half per cent of copper, and the
balance, antimony. [203]

The Court: But in all babbitt there are those
three elements?

The Witness: In all the babbitt we use.

The Court : That was not my question.

The Witness: Babbitt is a very much abused
word. They call anything babbitt from 95 per cent
lead to 5 per cent antimony. There are different
uses for the cheaper babbitt. Some may be composed
of lead, antimony, tin and copper. There are four
kinds of babbitt metals.

By Mr. Jewell :

Q. During the taxable period here involved, how
much did the babbit that you used cost you per
pound, delivered ; the approximate price during that
period ? A. Can I answer generally ?

Q. Yes.

A. Babbitt — our babbitt, which, of course, was
90 per cent tin, is affected entirely by the tin mar-
ket, We consider it low in price when it is below
40; high in price when it is above 60 cents a pound.
There is a range of fluctuation every day. We had
to give during this period — that is, the bottom price,
around 45 or 40, and the top price of 65 or 60. That
is due to the daily fluctuation of the tin market.

Q. How many pounds of babbit would you say
you averaged per month during this taxable period,
in your purchases ? [204]

J. Leslie Morris Co., Inc. 199

(Testimony of J. Leslie Morris.)

A. I am afraid that would be more of a guess.
You will have that on the statement of raw ma-
terials. I think we have a statement of operations
that will show the cost of the materials. That is
much better than I can tell you, unless you wish
me to give an opinion.

Q. Your raw materials will also include bush-
ings? A. Yes.

Q. From whom do you purchase those bushings ?

A. For many years from Bunting Brass and
Bronze, Toledo, Ohio.

Q. All the bushings ? A. Yes.

Q. From whom do you purchase shims?

A. From the National Motor Bearing Company,
Oakland, California.

Q. Approximately what do you pay for bush-
ings ?

A. Bushings will range in price from three cents
to fifty cents each, depending upon the amount of
brass in them, the diameter, and so on. Some might
be even higher than fifty cents.

Q. How about shims %

A. Shims would almost cover the same thing;
two or three cents.

Q. You have testified that you used the old bab-
bitt which comes off of the rods which are brought
in to you. Will you tell me approximately what per
centage of that old [205] babbitt you use as com-
pared with new babbitt which you purchase? Can
you give an opinion on that %

200 United States of America vs.

(Testimony of J. Leslie Morris.)

A. Oh, I would say that to replace what is re-
moved when the rods come in to us — because the
babbitt is exactly the same; the analysis of the old
babbitt will be exactly the same as the analysis of
the new babbitt; approximately the same — so much
so that we mix the two together and go right ahead
and use it — I wTould roughly say possibly half.

Q. So on most of the bearing rods that come in
to you about half the babbitt

A. Still remains in it, yes. Then too, you must
remember that babbitt, from melting it over and
over, oxidation takes place, and when you scrape
off the top we lose in weight about five per cent, to
melt the babbitt off — you skim about that much off
the top.

Q. When the average rod is brought in to you
nearly half the babbitt is burned off or worn away?

A. About, I would say. I wouldn't want to be
kept right to the point.

Q. Mr. Morris, I show you a document entitled
" Articles of Incorporation of J. Leslie Morris Co.,
Inc.," and ask you if that is a true copy. That is
a copy that came from your files ?

A. Yes, that's right. That is a true copy.

Mr. Jewell: I would like to introduce this into
evidence on behalf of the Government. [206]

Mr. Meserve: I am going to object to it, your
Honor, upon the ground it is incompetent, irrele-
vant, and immaterial. It can't serve any purpose in

J. Leslie Morris Co., Inc. 201

(Testimony of J. Leslie Morris.)
this case. I anticipate the argument is made that
the corporation's articles may indicate what it is
authorized to do, by its charter, but as we know, and
I think the Court takes judicial notice, many cor-
porations are authorized to do many things that
they never enter into or upon, and I think the fact
that they may be incorporated to do a manufactur-
ing enterprise would not serve to prove that they
did it, if that is the purpose for which it is being
introduced.

The Court: It might serve to prove it; it
wouldn't prove it, if that is what you mean. It
would be an item in the scheme of proof looking
to that conclusion. If a man says he is engaged in
the manufacturing business, it is some evidence
against him, that he is so engaged; it is not con-
clusive, of course. Let me read it before ruling. Ob-
jection overruled.

The Clerk: Government's Exhibit B in evidence.
(The document referred to was received in
evidence and marked "Government's Exhibit
B.")

RESPONDENT'S EXHIBIT B

ARTICLES OF INCORPORATION

OF

J. LESLIE MORRIS CO., INC.

Know All Men by These Presents: That we, the
undersigned, all of whom are citizens and residents

202 United States of America vs.

(Testimony of J. Leslie Morris.)
of the State of California, have this day voluntarily
associated ourselves together for the purpose of
forming a corporation under the laws of the State
of California.

We Hereby Certify :

First : That the name of said corporation shall be
J. Leslie Morris Co., Inc.

Second : That the purposes for which it is formed
are as follows :

To own, maintain and operate a business for the
manufacture, sale and distribution of Automotive
and Industrial Bearing Metals and products.

To own, maintain and operate branch plants and
offices in the State of California and elsewhere for
the manufacture, sale and distribution of such
metals and products.

To acquire land, buildings and personal property
in the State of California and elsewhere for the
purposes of establishing, maintaining and operating
such plants and offices as may be necessary for the
manufacture, sale and distribution of such metals
and products.

To acquire, by purchase, lease, or assignment, pat-
ents and patent rights bearing on the manufacture
of such metals and products.

To acquire, by purchase, lease, or assignment,
plants or businesses of other persons, firms or cor-
porations for the further development of the busi-
ness of this corporation, and to acquire and hold
shares of stock and bonds of other corporations,

J. Leslie Morris Co., Inc. 203

(Testimony of J. Leslie Morris.)

and to sell, exchange and otherwise dispose of or

trade in such shares and bonds.

To do any and all things necessary to properly
carry on the business of the corporation, and to do
any and all things necessary or incident to the car-
rying on of the various lines of business in which

this corporation may now or hereafter be engaged.
* * *****

[Endorsed]: Respondent's Exhibit B. Filed 5/29,
1940. R. S. Zimmerman, Clerk. By B. B. Hansen,
Deputy.

Mr. Jewell : If the Court please, I would like to
confer with counsel.

Q. Mr. Morris, I show you what purports to be
a copy of the 1933 return of capital stock tax for
the J. Leslie Morris Corporation, and ask you if
you identify that as a [207] true copy of the return,
or is that the one which you furnished the Govern-
ment out of your file %

A. You will have to ask our accountant to pass
on that. I don't recall of having seen it before.

Mr. Meserve : We will make no point of the fact
that it is not a copy of the original.

Mr. Jewell: Thank you. Then I would like to
offer this in evidence on behalf of the Government
as Defendant's Exhibit C.

The Clerk: C.

204 United States of America vs.

(Testimony of J. Leslie Morris.)

Mr. Meserve: We will object to it upon the
ground it is incompetent, irrelevant, and immaterial.
Mr. Jewell: It is offered for the same purpose,
as were the articles of incorporation.
The Court: Objection overruled.
The Clerk: Government's Exhibit C in evidence.
(The document referred to was received in
evidence and marked " Government 's Exhibit
C.")

RESPONDENT'S EXHIBIT C

1933 RETURN

OF

CAPITAL STOCK TAX

For Year Ending June 30, 1933
Domestic Corporations

This return must be filed with the Collector of
Internal Revenue for your district on or before July
31, 1933, and the tax must be paid on or before that
date.

1. Name — J. Leslie Morris Co., Inc.

2. Address — 1361 So. Hope St., Los Angeles,
Calif.

3. Name of parent company, if any — (District
filed— )

4. Name of subsidiary, if any — No. shares
held— (District filed— )

5. Nature of business in detail — Manufacture
Motor Bearings.

J. Leslie Morris Co., Inc. 205

(Testimony of J. Leslie Morris.)

6. Incorporated or organized in State of — Cali-
fornia. Month — October. Year — 1925.

[Endorsed]: Respondent's Exhibit C. Filed 5/29,
1940. R. S. Zimmerman, Clerk. By B. B. Hansen,
Deputy Clerk.

Mr. Jewell : I wish to confer with counsel again,
please. With the consent of counsel, and no objection
to the fact that these are not the originals, I offer
a copy of the State of California Bank and Cor-
poration Franchise Tax Return, of J. Leslie Morris
Co., Inc., for the calendar year 1932, as Defendant's
Exhibit D.

The Clerk: Government's Exhibit D.

Mr. Meserve: We are objecting to it upon the
ground [208] that it is incompetent, irrelevant, and
immaterial, but not incompetent because it is not
the best evidence.

Mr. Jewell: It is introduced for the same pur-
pose as the articles and capital stock tax return.
We are offering it merely for the purpose, your
Honor, as an answer to Question 5 at the top of
the return, as to the kind of business, where it is
stated, "Mfg. Motor Bearings."

The Court: Ojection overruled.

The Clerk: Government's Exhibit D in evidence.
(The document referred to was received in
evidence and marked "Government's Exhibit
D.")

206 United States of America vs.

(Testimony of J. Leslie Morris.)

RESPONDENT'S EXHIBIT D

State of California

BANK AND CORPORATION FRANCHISE
TAX RETURN

This return must be filed with the Franchise Tax
Commissioner within two months and fifteen days
after the close of taxable year, together with remit-
tance payable to State Treasurer.

[Space for Name and Address.]

1. Exact corporate title, J. Leslie Morris Co.,
Inc.

2. Mail address, 1361 So. Hope Street, Los An-
geles, Calif.

3. Date of incorporation, Oct. 14, 1925.

4. Under laws of California.

5. Kind of business, Mfg. Motor Bearings.

6. Date began business in California, Oct. 14,
1925.

7. Is this a consolidated return % No.

8. Consolidated with

Copy Statement of Net Income From Corporation
Federal Income Tax Return for the Calendar

Year 1932, or the Fiscal Year Commencing

and Ending

Gross Income
********

[Endorsed] : Respondent's Exhibit D. Filed 5/29/
1940. R. S. Zimmerman, Clerk. By B. B. Hansen,
Deputy Clerk.

J. Leslie Morris Co., Inc. 207

(Testimony of J. Leslie Morris.)

Mr. Jewell: I offer the same return for the
calendar year 1933, for the same purpose.
Mr. Meserve: Same objection.
The Court: Same ruling.

Mr. Meserve : With the same understanding, that
I am not objecting to their being incompetent by
reason of their not being the best evidence.
The Clerk: Government's Exhibit E.

(The document referred to was received in
evidence and marked " Government 's Exhibit
E.")

RESPONDENT'S EXHIBIT E

State of California

BANK AND CORPORATION FRANCHISE
TAX RETURN

This return must be filed with the Franchise Tax
Commissioner within two months and fifteen days
after the close of taxable year, together with remit-
tance payable to State Treasurer.

[Space for Name and Address.]

1. Exact corporate title, J. Leslie Morris Co.,
Inc. Corporate number, 116056.

2. Mail address, 1361 So. Hope St., Los Angeles,
Calif.

3. Date of incorporation, Oct, 14, 1925.

4. Under laws of California.

5. Kind of business, Mfg. Motor Bearings.

208 United States of America vs.

(Testimony of J. Leslie Morris.)

6. Date began business in California, Oct, 14,
1925.

7. Is this a consolidated return? No.

8. Consolidated with

Copy of Statement of Net Income From Corpora-
tion Federal Income Tax Return for the Cal-
endar Year 1933, or the Fiscal Year Commenc-
ing and Ending

Gross Income
********

[Endorsed]: Respondent's Exhibit E. Filed 5/29/
1940. R. S. Zimmerman, Clerk. By B. B. Hansen,
Deputy Clerk.

Mr. Jewell: I also offer in evidence a copy of
the same return for the calendar year 1934, for the
same purpose.

Mr. Meserve: Same objection.
The Court: Same ruling.

The Clerk: Government's Exhibit F in evidence.

[209]
(The document referred to was received in
evidence and marked "Government's Exhibit F.")

RESPONDENT'S EXHIBIT F

State of California

BANK AND CORPORATION FRANCHISE
TAX RETURN

This return must be filed with the Franchise Tax
Commissioner within two months and fifteen days

J. Leslie Morris Co., Inc. 209

(Testimony of J. Leslie Morris.)
after the close of income year, together with remit-
tance payable to State Treasurer.

[Space for Name and Address.]

1. Exact corporate title, J. Leslie Morris Co.,
Inc.

2. Mail Address, 1361 S. Hope St., Los Angeles,
Calif.

3. Date of incorporation, Oct, 14, 1925.

4. Under laws of California.

5. Date began business in California, Oct. 14,
1925.

6. Kind of business, Mfg. Motor Bearings.
Copy Items 1 to 27 From Page 2, Corporation Fed-
eral Income Tax Return for the Calendar Year

1934 or theFiscal Year Commencing

and Ending

Gross Income
********

[Endorsed]: Respondent's Exhibit F. Filed 5/29,
1940. R. S. Zimmerman, Clerk. By B. B. Hansen,
Deputy Clerk.

By Mr. Jewell:

Q. Mr. Morris, to reiterate the figures, I believe
you testified that approximately ten per cent of
the rods which you sold went back to the same
person; the same rods went back to the same per-
son who turned them in. That percentage figure is
correct? A. Roughly, yes.

210 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. To the best of your knowledge?

A. To the best of my knowledge, yes.

Q. You stated, in response to a question from
counsel for the plaintiff, that when rods were in-
jured or damaged, you did not take them in. Will
you explain to us wThat you meant by injured or
damaged ?

A. We mean that when the connecting rod is,
in our opinion, unfit for further service.

Q. What would make it unfit for further service ?

A. A crack in the surface of the rod which,
although it was not broken, that crack is there,
and we would be fearful of putting it in automo-
biles— so fearful that we return it. If it is badly
bent, or bent at all, for that matter, so it is easily
noticeable to the eye, straightening might jeopardize
its safety for further use.

Q. But during the taxable period here involved
you did straighten them ? [210]

A. Aligning, yes. Aligning is a little bit differ-
ent from straightening. Straightening is when the
rod obviously is bent or cracked. Aligning is to
correct a slight adjustment of three-thousandths
to five-thousandths of an inch. On the shaft it has
twisted to that extent and that is designated as
aligning.

Q. In other words, straightening a rod is correct-
ing a longitudinal curvature?

A. Yes. Sometimes they come in bent double
and nobody would attempt to straighten a rod of
that sort.

J . Leslie Morris Co., Inc. 211

(Testimony of J. Leslie Morris.)

Q. Aligning a rod is where you adjust the cap or
the shank end of the rod ?

A. No, it is still a bending operation, but such
a slight bending operation; it is still a straight-
ening operation, I mean. We still straighten the
bend that is in the rod, but that is so small, one-
thousandth or two-thousandths of an inch, that it
could not possibly affect the structure of the steel
and imperil its ability to function further.

Q. Mr. Morris, it is not clear to me just ex-
actly what the difference is between straighten-
ing and aligning. For the purpose of the record,
at least, I am sure it is not quite clear, and I would
like to have you explain the difference, if you can.
A. I am speaking in the parlance of the
trade; in the parlance of the trade we call
straightening a rod when [211] you would
possibly stick it into a vise on the bench, with
no thought of alignment at all, but probably try-
ing to correct it with the eye, to look straight. That
is what we call straightening a connecting rod.
Aligning is something you cannot possibly deter-
mine with the eye. You must mount it on a fix-
ture, which is a common fixture in all garages, and
by a surface plate, determined by a feeler gauge.
A feeler gauge is a thin sheet of steel, with desig-
nations of a thousandth or two-thousandths, usu-
ally grouped together like a fan, so that you can
select one-thousandth or two-thousandths, or three-
thousandths. It is determining a very, very fine
adjustment in the perfect alignment of the connect-

212 United States of America vs.

(Testimony of J. Leslie Morris.)
ing rod bearing with the wrist pin, and invariably
now it is done when it is assembled. Aligning is
a very fine adjustment whereas straightening is just
hitting with a hammer and pulling to make it
straight to the eye.

Q. After straightening you would further re-
fine the straightening by aligning?

A. Yes, we do not do straightening, because we
do not want to take the responsibility.

Q. What you mean is, alignment, in common par-
lance, is a fine degree of straightening %

A. Yes.

The Court : A degree of straightening %

The Witness: Yes; it requires instruments to
deter- [212] mine how much it is out.

The Court: Instruments of precision %

The Witness: Yes.

The Court: You did aligning during the taxable
period 1

The Witness: Yes, we frequently have rods
brought to the counter, and they say, " Please align
them for us." We align them and hand them back
the same connecting rod. That is a practice that ob-
tains in the industry.

By Mr. Jewell:

Q. That is your custom?

A. Yes, because some garages do not have this
equipment, some of the very smaller ones, and they
send them to us to have the rods aligned. That is
common practice in the trade, to have one of these

J. Leslie Morris Co., Inc. 213

(Testimony of J. Leslie Morris.)
stands for aligning, but it is a very expensive tool.
Most of the garages are provided with them, but
some few are not.

The Court : Have you finished that line %

The Witness: Yes.

The Court: I want to ask you a question about
this prospectus. I am calling the catalog a pros-
pectus, referring to Plaintiff's Exhibit 49, which
is the one marked 1933. I call your attention to
the following language appearing on the inner side
of the first page: " Features of 1933. Jobber's In-
ventories Reduced. Rights and Lefts now Inter-
change. Jobbers Need No Longer Stock both Rights
and Lefts to Service Off-set. Pressure Feed Con-
necting Rods. [213] By our exclusive manufactur-
ing practice, developed for 1933 conditions — Job-
bers now reduce inventories 50% on these numbers.
Obsolescence protection and stock control. Again
1933 conditions demand protection of jobbers' in-
vestments. Moroloy has met the situation with an
Obsolescence and Stock Control Plan, which guar-
antees complete and continuous protection of the
Jobbers Connecting Rod Investment. Details on re-
quest."

On the next page the following: " Casting. Moro-
loy Certifugally Processed Rods Meet Engineering
Specifications of Original Car and Motor Manufac-
turers. This process deposits babbit on the tinned
surface under extreme centrifugal pressure, assur-
ing an absolute bond between babbitt and steel, that

214 United States of America vs.

(Testimony of J. Leslie Morris.)
is not obtainable by the old fashioned hand poured
method. Centrifugally processed connecting rods are
endorsed by the Society of Automotive Engineers
and are used exclusively by the following manufac-
turers : ' ' — mentioning a number of them.

Then this legend: "If it's not centrifugally cast
— it's not a factory duplicate."

Under the heading: "Machining and Finishing:
Moroloy machining and finishing is accompanied
with the same engineering exactness, following close-
ly the recommendations and usages of leading origi-
nal manufacturers. * * * Moroloy processed rods
are straightened, cleaned and serviced with new
bolts, nuts, shims and piston pin bushings. Oil [214]
clearance allowed. No scraping nor reaming re-
quired. Electrical alignment is an exclusive Moro-
loy feature."

A. Under the whip of extreme competition that
was sales talk. We thought we had hit on something
which was very good when we put the electric light
on the aligning fixture. We found it was a fail-
ure and used it no more. I can explain the obso-
lescence feature.

The Court: After I finish it all I will ask you.

"Service. Fifteen manufacturing plants, located
at strategic points over the United States and Can-
ada, render a coast-to-coast service, convenient to
every jobbing center. Ample stocks at all branches
assure same day shipment. Telephone and tele-
graphic orders receive instant attention/' Now you
may make any explanation you deem pertinent.

J. Leslie Morris Co., Inc. 215

(Testimony of J. Leslie Morris.)

The Witness: In 1933, your Honor, the condi-
tions were not any too good. Everybody was fear-
ful of their investment. We thought we had hit upon
a very wonderful scheme when this catalog was
brought out, to save, if possible, the number of
connecting rods that the wholesaler kept on his
shelf. There is what we term a bleeder hole on the
side which sprays the oil. We refer to it in the leg-
end under the picture. That sprays the oil on the
cylinder wall. Now, the new rods, — in fact, all
the comiecting rods, the ones that are in the original
car, are all set around in one way so that the oil
hole extends, say, on the [215] right-hand side of
the motor, and flows oil to spray on the cylinder
wall of the right-hand side. There is no hole on the
other side as they originally come to us. There was
no reason why you couldn't reverse the connecting-
rod. So in referring to obsolescence we meant that
we drilled the hole the same size on the opposite
side so that you could put the rod in, despite the
fact that it was a trifle off-set, and instruct that
the garageman plug the hole he did not use. In other
words, we drilled a hole on each side. We found
that was not practical, because the garageman very
shortly would put it in without reading any instruc-
tions at all, and would leave both holes open so
it would burn out, and it wouldn't give the oil pres-
sure; so that was one of the things in 1932 to 1933
we were all struggling very hard to do, without en-

216 United States of America vs.

(Testimony of J. Leslie Morris.)

tailing any more investment than was necessary.

By Mr. Jewell :

Q. Will you explain which end of the rod the
bleeder hole is in? A. The babbitting.

Q. In the upper end?

A. In the upper end, yes. Do you want that
explained as to the fifteen manufacturing plants?

The Court : If you want to explain that.

The Witness : Yes, I would be very glad to do it,
because Moroloy service is rendered in places other
than [216] rebabbitting establishments. For in-
stance, in Regina, Saskatchewan, when you walk
up to their business, you find it is a machine works.
They are rendering Moroloy service. You find a
regular manufacturing plant, I think they manu-
facture instruments. They bought the equipment,
and have added the business of manufacturing con-
necting rods. Frankly, we did not know it was such
an important word at the time. In other places,
take for instance, Atlanta, Georgia, their Moroloy
bearing service is a part of a wholesale automotive
establishment. In Jacksonville, Florida, that is a
machine shop where they do crank shaft regrind-
ing, engine boring, and so they use the word " Moro-
loy" to distinguish that service rather than the ma-
chinery. It is a place where repairs were generally
done, and in some instances, manufacturing was
done. Of course, in our own plants, we do nothing
but babbitt connecting rods.

The Court: What is it that produces or enables

J. Leslie Morris Co., Inc. 217

(Testimony of J. Leslie Morris.)

one to practice this Moroloy system, so called? Is

it tools?

The Witness: Yes, they bought molds from us.
We had a whole string of little molds and patterns
to have cast iron molds made from which we could
sell cheaper than they could produce the patterns,
and have each made individually. As I recall it, we
sold the outfit for $2900.00. That was the whole
string of molds, to compensate for the various types
of oil patterns we used. This was started back in
'25 when practices were a little bit different. As a
matter [217] of fact, all that we sold are no longer
used by virtue of the conditions in the automo-
bile industry. We had those patterns made, and
from those patterns cast iron molds were made that
they would pour the babbitt against, in every in-
stance following, just as the book says, the design
and practice of the original car manufacturer. In
other words, we wanted to put babbitt in our babbit-
ted rod to conform to their recommendations, be-
cause we felt the engineers knew what they were
doing. That was the analogy that we were trying to
accomplish all the time; that our repair job would
be just as serviceable to the customer as it was origi-
nally.

The Court: Was that the only commercial ad-
vantage? For instance, in Saskatchewan, Canada,
where labor conditions would be different — assum-
ing they would be different, was that the only com-
mercial advantage that a man desiring to engage

218 United States of America vs.

(Testimony of J. Leslie Morris.)
in this business would have in using your system,
the Moroloy system, would be the mechanism where-
by he practiced this system ?

The Witness: Yes, it was more or less the
thought of getting us all under the same trademark
name; under the name we copyrighted; the same
name, so that it would give a semblance of national
organization, national service, wre might say; not
to hold out as a national organization or a national
service.

The Court: I am speaking of Saskatchewan, the
international service. [218]

The Witness: That is the only place we cross
any boundary, however.

The Court: Was there something in the system
that indicated an efficient babbitting of a connect-
ing rod that had been used and was not unfit for
use, but imperiled the efficient use of the vehicle —
wasn't the system designed to change the connect-
ing rod so that it would function just as efficiently
as it did when it came from the factory %

The Witness: That is exactly right; so it would
function just as efficiently as the rod had originally
with the bearing in it ; in other words, our rebabbit-
ting service followed the line of a new connecting
rod at the factory, that would be babbitted the same
as ours. They are made of steel, and have to be bab-
bitted. That is what is called original babbitting.
That is why we referred to using the same process
in our rebabbitting as they did on the original rod

J. Leslie Morris Co., Inc. 219

(Testimony of J. Leslie Morris.)
to babbitt it. That was the point we were trying to
get across ; trying, naturally, to make it appear that
we did it better than anyone else, and which wTas
natural in business advertising.

The Court: You say, quoting again from the
same Exhibit 49: "Moroloy machining and finishing
is accomplished with the same engineering exactness,
following closely the recommendations and usages
of leading original manufacturers. ' ' What did you
mean by saying ' ' original manufacturers ' ' ?

The Witness : The people I mentioned yesterday.
When [219] you drive an automobile off the floor,
we w^ould say that everything in that automobile
was original; that is to say, the babbitting is origi-
nal, the wrist pins are original, and so on. As you
see 500 or 5,000 more down the road, some parts
of the automobile would fail; in this instance, the
babbitt, for want of oil, or excessive use, or failure
of the operator to put oil in, and this bearing is
impaired; that is, it begins to make a noise; you
hear a clicking; it begins to make a noise, and it
indicates that it should be replaced. It doesn't stop
the automobile, but it does mean that it should be
replaced so at the first opportunity, when you have
a valve ground, or something like that, the garage-
man invariably finds it and suggests to you while
he is in the automobile, repairing it, " Hadn't you
better get this rod exchanged." It is common par-
lance of the industry. That is a distinguishing
feature. When we say "original," we mean a new

220 United States of America vs.

(Testimony of J. Leslie Morris.)
automobile as delivered to the customer. Later on,
when some part fails, just exactly as a tire is re-
placed, or something of that sort, so it is with a con-
necting rod. The rod is all right, but the bearing
needs rebabbitting, and as the garageman frequent-
ly says, "Go over and get the rod exchanged for
this," or "This bearing is cracked," and "we have
an extra for it." I hope I have made myself clear.

By Mr. Jewell :

Q. I show you Plaintiff's Exhibit 46, a price list
[220] effective April 15, 1933. When was your next
price list after this one ?

A. From memory, sir, I couldn't say, but we
have got them all here. We went through the files
and picked them out very carefully. We only had
one or two, but the ones we have, to the best of my
knowledge, are the ones in sequence as they came
out.

The Court: Here is one effective September 24,
1934: Exhibit 47.

The Witness: The dates on them indicate the
sequence in which they were issued.

The Court: This Plaintiff's Exhibit 47, being
a price list effective September 24, 1934, is the
last of the price lists which are placed in evidence,
to the best of your knowledge, that covers up
through the taxable period here involved?

The Witness: Yes.

Q. Mr. Morris, I see on Exhibit No. 21, in the
legend, you have stated that the rod is now placed

J. Leslie Morris Co., Inc. 221

(Testimony of J. Leslie Morris.)
in the lathe and babbitt is bored, faced and cham-
fered. Explain the meaning of that word.

A. Chamfered !

Q. Yes.

A. It is the little oval edge on the side we faced
perpendicularly. If we bore a hole, we have square
corners, and we knock off the square corners, and
the oval, the rounded [221] effect is called cham-
fering.

Q. Similar to beveling?

A. Yes. It is oval, rather than flat. They are
frequently just beveled though. In this instance
we do the same operation.

Q. You state on the legend of Picture 26 that
about one-half the connecting rod rebabbitts re-
quire new bushings in the small end of the shank.
What happens to the other end of the rods %

A. They are so designed that they clamp the
wrist pin tight with a screw. I can show you the
distinction. There is a clamp, and that doesn't re-
quire a bushing, because when the clamp screw is
put down, it pulls down tight on the wrist pin that
is loose in the piston.

Q. Referring to what exhibit?

A. Exhibit 41. It is just the design of the con-
necting rod. It doesn't take a bushing. That showTs
plainly, because that has a new bushing in it.

Q. Plaintiff's Exhibit 34?

A. Yes. Those are the two types. They run just
about equal, I would say.

222 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. I notice on Plaintiff's Exhibit 34, in the bush-
ing in the shank end of the rod, the small bushing,
a groove around the center of the bushing. Is that
made by you, that groove ?

A. No, the groove is in the bushing when we
buy it. [222]

The Court: Let me see that exhibit. You buy
the bushing?

The Witness : Yes, we buy the bushing.

The Court : Do you babbitt it ?

The Witness: We buy the bushing from the
Bunting Brass at Toledo, and there are several other
manufacturers of bushings.

By Mr. Jewell :

Q. Mr. Morris, on Plaintiff's Exhibit No. 29 you
state in the legend that certain Pontiac Bearings
require a continuous oil groove around the center.
What other model automobiles also require that?

A. The very late 1939 and 1940 Chevrolet. I be-
lieve those are about the only two, — the Chevrolet,
and the Pontiac ; but I believe that we cut the same
oil groove in the '40 Chevrolet.

Q. I notice that Plaintiff's Exhibit 32, in the
legend, it ends the statement with respect to the
procedure involved in the plaintiff corporation.
What occurs to the rods after this operation is com-
pleted, as described in Plaintiff's Exhibit No. 32?

A. What happens to the connecting rod ?

Q. Yes.

/. Leslie Morris Co., Inc. 223

(Testimony of J. Leslie Morris.)

A. It is packed and shipped; put in boxes and
shipped. We unfasten the nut to see that the thread
in the bolt has not slipped during the time it was
tightened [223] up while we were rebabbitting it.
We check it, and then it goes in the little red box
we spoke of, and is sent back to the customer. In
many instances they are waiting at the counter for
them, and we don 't put them in the box.

Q. When a con. rod comes in to you, and it is
of the type shown in Plaintiff's Exhibit No. 34, it
requires that small bushing at the shank end of the
rod, you automatically remove that bushing, do you
not? A. The old bushing?

Q. Yes. A. Yes, we take it out.

Q. Whether it is damaged or is not ?

A. The supposition is it is worn or it wouldn't
come in. We always replace the bushing, unless the
order reads "Do not replace bushings/' and we
have orders to show. The reason of that is they have
an oversize wrist pin that they put in there ; in other
words, something special about the wrist pin, and
the order frequently reads, "Do not change the
bushing"; but unless it is ordered that way, we in-
variably change the bushing and put in a new one.

Q. Most of the rods which come in to you need
a new bushing at the shank end of the rods, do they
not ? A. Yes.

Q. That is worn? A. Yes.

Q. It is necessary for the rod to properly per-
form its [224] function, that the bushing, as well

224 United States of America vs.

(Testimony of J. Leslie Morris.)

as the bearing, at the bearing end of the rod, be in

first class shape ? A. Yes.

Mr. Jewell : You may take the witness.

Redirect Examination
By Mr. Meserve :

Q. Mr. Morris, before rebabbitting connecting
rods became a specialized service, how was a burned
out connecting rod repaired, prior to 1910 or 1911 ?

Mr. Jewell: If the Court please, I object to that
question. That was asked on direct examination. I
haven't touched on it in cross examination.

The Court: He said it was done manually, by
the garageman.

The Witness : Yes.

By Mr. Meserve :

Q. You referred, Mr. Morris, to a guarantee that
you give or make in some form. Just what did you
refer to, and what do you guarantee ?

A. We guarantee the rebabbitting job; guaran-
tee the babbitt against defective workmanship and
material; that is, the labor and material that goes
into the service of rebabbitting the connecting rod.

Q. And it has nothing to do with the rod itself?

A. No. There is no guarantee on the forging, the
connecting rod itself, because we did not make that,
and we [225] couldn't guarantee it.

Q. In discussing in your cross examination the
matter of exchange with automotive or automobile
dealers who sell new cars from their showroom

/. Leslie Morris Co., Inc. 225

(Testimony of J. Leslie Morris.)
floors, of various types and models and makes, you
referred to the fact that they also maintained an
exchange of connecting" rods. It is true, is it not,
Mr. Morris, that practically each of these institu-
tions maintain a repair shop? A. Yes.

Mr. Jewell: If the Court please, I object to the
question as leading the witness.

Mr. Meserve: All right, I will withdraw it.

Q. Do each of the dealers in new cars, automo-
tive dealers, maintain a repair shop for their cars
and other cars ?

Mr. Jewell: One moment, please. I object to the
question upon the ground that it calls for a conclu-
sion on his part as to whether or not the type of
establishment maintained by the automobile manu-
facturer amounts to a repair shop.

The Court: I don't know whether it calls for a
conclusion or not. I am assuming he is not going to
answer a question that he cannot answer. Overruled.

The Witness: As a matter of fact, they all have
repair shops. All of the larger dealers and distribu-
tors. I am speaking about people like Hoffman and
Howard; they all [226] maintain a repair depart-
ment, and they use connecting rods of their own
make, and use connecting rods which are babbitted
from many other makes, representing repairs on
anything that comes into their shop to be repaired;
used cars, and such.

By Mr. Meserve :

Q. Do you know it to be a fact, Mr. Morris, that

226 United States of America vs.

(Testimony of J. Leslie Morris.)
the larger or more principal dealers of the popular
type of cars repair cars that they take in in ex-
change, whether of the same make or of other
makes? A. They do.

Q. And in referring to the exchange with cer-
tain dealers, you are referring to the connecting
rods used in that type of operation ?

A. They bring rods over from any make of car,
and ask for a babbitted one, or have them babbitted.

Q. You used the statement, Mr. Morris, in your
cross examination, that very frequently you get back
in your exchange operation one of your own rods.
What did you mean by the statement "one of my
own rods"?

A. Did I make that statement ?

Q. I wrote it down and understood it to be that.
Maybe I misunderstood it. You said very frequently,
when you referred to your five per cent differential
that you had to replace them in the exchange opera-
tion through jobbers, that very frequently you got
back one of your own [227] rods. What did you
mean by that statement ?

A. I certainly didn't intend to, sir, because I
wouldn't be able to recognize my own rod if it came
back. May I have the question read ?

Q. I will restate it again. As I understood it —
it might not be important; I want to be certain.

A. I will be glad to help.

Q. Referring to the fact that at certain times,
Mr. Morris, you may have to go to a jobber, or to

J . Leslie Morris Co., Inc. 227

(Testimony of J. Leslie Morris.)
an automobile dealer and get a rod of a particular
type that you want to serve some customer that may
be asking for it, and you might not have it on hand,
or he did not send you a rod to rebabbitt of that
type — my understanding was that in response to the
inquiry made in that particular you used the phrase,
"we frequently have gotten back from the jobber
one of our own rods. ' '

A. I certainly want to correct it if I did, be-
cause I wouldn't be able to determine our own rod
after it was babbitted unless, of course, it was not
used. They frequently send them back, if they don't
use them, and we give them credit for the babbitt
and all. I don't recall having said that, but if I did,
I want to correct it.

Q. I may be the one who is confused. I want to
be sure it was myself, and not the record or the
Court. If you did use that statement in your testi-
mony, I assume you meant one of the rods that you
had rebabbitted and not any [228] rods of your own
make or manufacture.

A. Of course, that is what I would mean, yes.

Q. Now, during the time in question in this suit,
Mr. Morris, did you have or maintain any warehouse
or service? A. No.

Q. You have verified that ?

The Court : Warehouse or service ?

Mr. Meserve : Warehouse service.

The Court: What is the answer to that?

The Witness : No.

228 United States of America vs.

(Testimony of J. Leslie Morris.)
By Mr. Meserve :

Q. You have verified that since yesterday by
examining your records, is that correct ?

A. That's correct.

Q. Referring, Mr. Morris, to Government's Ex-
hibit A, can you explain in a little more particular-
ity, the method of billing, taking Sheet 1, and the
first item in Column 1 on Sheet 1, 3 in quantity.
What does that refer to ?

A. That C. E. Encell, Los Angeles, sent to us
three No. 422 connecting rods to have rebabbitted,
for which we charged him 70 cents each, $2.10.

Q. So that the 70 cents is the rebabbitting price 1

A. This 70 cents is the price for each, yes.

Q. 70 in the column under the word "Rebab."
on page 1 of Exhibit A, is the rebabbitting charge
per item % [229] A. Per item, yes.

Q. And under "Extension" is the total?

A. The total.

Q. And in the instance which you are looking
at on page 1 of Exhibit A of your invoice, there is
no charge made at all for any rods 1

A. No, those rods were received before we re-
babbitted them.

Q. What is the difference, if any, on page 2 of
Exhibit A?

A. That is an identical transaction.

Q. An identical transaction, except a different
amount ?

A. A different concern, yes. This is the Hartman
Auto Parts Co., instead of Encell.

J. Leslie Morris Co., Inc. 229

(Testimony of J. Leslie Morris.)
Q. And the quantity ? A. Yes.

The Court The last one is the one that shows the

difference %

The Witness : Yes, the last one.

By Mr. Meserve :

Q. This is the one I want to get, turning to page
3 of Exhibit A as it is now bound, and referring
to the one to the Mission Auto Parts Company, is
that right ? A. That is correct.

Q. Explain the difference in that one as to the
ones [230] you have previously explained.

A. This records the rebabbitting charge on one
0529 connecting rod, and the order indicates that
we took a babbitted connecting rod and sent it in
advance of receiving this. We made a deposit charge
under " Forging" of $1.80, and the sum of the two
is $2.85. We segregate that sum. Then when we issue
a credit against this $1.80, the bookkeeper there can
instantly determine that we have credited him with
the proper amount.

Q. The $1.05 shown on page 3 was a babbitting
charge1? A. Yes. That remains, of course.

Q. On page 4, the explanation is the same?

A. The same as page 1.

The Court: Evidently when they were detached
here, the order was changed.

Mr. Meserve : That was why I wanted to get the
matter straight, your Honor.

Q. Reference was made, Mr. Morris, to an en-
gine business that you are conducting, or have an

230 United States of America vs.

(Testimony of J. Leslie Morris.)
interest in in East Los Angeles. That has nothing
to do with the J. Leslie Morris Company in any
particular? A. No, it hasn't.

Q. The J. Leslie Morris Company does not have
any ownership in it, directly or indirectly, except
that you may be personally interested ?

A. That is all. [231]

Q. When you refer to a mechanic in Saskatche-
wan that wants to do rebabbitting in the repair of
connecting rods, there is nothing to prevent him
from making or having made the molds and build-
ing and adapting machinery to do exactly what is
done, without any permission from you whatsoever ?

A. Nothing in the world, no.

Q. Except that he cannot use the words "Moro-
loy" unless you desire to let him?

A. That's right.

Q. But there is nothing to prevent him from
getting any of the apparatus to do it? It is stand-
ard?

A. He could duplicate every bit of the equip-
ment, if he saw fit.

Q. The only advantage to him is, you having had
the dies and patterns made, you can furnish them
cheaper ? A. Yes.

Q. You have seen these two letters?

Mr. Jewell : Yes.

Mr. Meserve: You are not making any objection
to their not being originals ?

Mr. Jewell : No.

J. Leslie Morris Co., Inc. 231

(Testimony of J. Leslie Morris.)
By Mr. Meserve :

Q. Mr. Morris, I show you copies of two letters
that were transmitted to you from the deputy com-
missioner of Internal Revenue, dated March 25,
1938, and April 7, 1939, which letters are in sub-
stance the notice by the Government [232] of the
refusal or declination to concede to your claim for
a refund.

Do you remember receiving the originals of those
letters % A. I do, yes.

Mr. Meserve : We will offer the copies of the two
letters together, one of March 25, 1938, and of April
7, 1939, from the Commissioner of Internal Reve-
nue, as Plaintiff 's Exhibit next in order.

Mr. Jewell : No objection for not being originals.

The Clerk: Plaintiff's Exhibit 61 in evidence.
(The document referred to was received in
evidence and marked "Plaintiff's Exhibit No.
61.")

PLAINTIFF'S EXHIBIT No. 61

Mar 25 1938
MT:ST:JNG
C1:S-61906

J. Leslie Morris Company, Inc.,
1361 South Hope Street,
Los Angeles, California.

Gentlemen :

Reference is made to your claim for refund of
$500.00, representing tax paid under the provisions
of section 606(c) of the Revenue Act of 1932.

232 United States of America vs.

(Testimony of J. Leslie Morris.)

The claim is based on the contention that rebab-
bitted connecting rods are not subject to the tax im-
posed by section 606(c) of the Eevenue Act of 1932.
In this connection you refer to the decision ren-
dered in the case of the Hempy-Cooper Manufac-
turing Company vs. the United States and other
decisions.

You are advised that this office has consistently
held that rebabbitted connecting rods which are
placed in stock are subject to the tax imposed by
section 606(c) of the Eevenue Act of 1932, when
sold or exchanged, and that the allowance granted
for the unserviceable article taken in trade should
'be included as a part of the sale price on which the
tax is computed.

With respect to the decision rendered in the Dis-
trict Court for the Western District of Missouri,
Western Division, in the case of the Hempy-Cooper
Manufacturing Company vs. the United States, you
are advised that the Bureau has taken the position
that the decision is confined to that case and will
not be considered as a precedent for other cases
where similar facts are involved. The decisions cited
are regarded as making no change in the position
heretofore taken by the Bureau with respect to the
taxability of rebabbitted connecting rods and will
not be considered as a basis for the adjustment of
claims filed by other taxpayers.

J. Leslie Morris Co., Inc. 233

(Testimony of J. Leslie Morris.)
In view of the above, the claim is rejected in full.
Respectfully,

GUY T. HELVERING,

Commissioner.
By (Signed) D. S. BLISS

Deputy Commissioner.
CC :Los Angeles, Cal.
CC .-Files
JNG:MR

Apr 7 1939
MT:ST:JNG
Cls. S-65530 & 67956

J. Leslie Morris Company, Inc.,
1361 South Hope Street,
Los Angeles, California.

Gentlemen :

Reference is made to your claims for the refund
of $500.00 and $500.00, representing tax paid under
the provisions of section 606(c) of the Revenue Act
of 1932 for the period June 1932 to August 1935, in-
clusive.

The claims are based on the contention that you
are not a manufacturer of connecting rods. In this
connection you refer to the decisions rendered in
the cases of J. C. Skinner v. the U. S., Monteith
Brothers Company v. the U. S., Hempy-Cooper
Mfg. Company v. the U. S., and Pioneer Motor
Bearing Company v. the U. S.

234 United States of America vs.

(Testimony of J. Leslie Morris.)

This office takes the position that a person who
produces connecting rods, etc., from used or scrap
materials or from both new and used material by
a manufacturing process which produces serviceable
products, is subject to the manufacturer's excise tax
imposed by section 606(c) of the Revenue Act of
1932 on his sales thereof. Cases on this point which
support the Bureau's position and decline to follow
the J. C. Skinner Company, Monteith Brothers
Company, Hempy-Cooper Mfg. Company and Pio-
neer Motor Bearing Company's decisions are Claw-
son and Bals Inc. v. Harrison, decided November
26, 1938 by the United States District Court for the
Northern District of Illinois, and E. Edelmann and
Company v. Harrison, decided March 16, 1939 by
the same Court.

In view of the above the claims are rejected in
full.

Respectfully,

GUY T. HELVERING,

Commissioner.
By:
(Signed) D. S. BLISS

Deputy Commissioner.
cc-Los Angeles, California.
cc-Files.
JNGrEPM

[Endorsed]: Plaintiff's Exhibit No. 61. Filed
5/28, 1940. R. S. Zimmerman, Clerk. By B. B. Han-
sen, Deputy Clerk.

J. Leslie Morris Co., Inc. 235

(Testimony of J. Leslie Morris.)

Mr. Meserve: Mr. Jewell, I understood in our
conference a moment ago that you would agree that
the copies of the 1934 and 1935 capital stock tax
returns of J. Leslie Morris Company, Inc., which
I have in my hand are copies

Mr. Jewell: I will not object to them upon the
ground that they are not the best evidence.

Mr. Meserve : I call your attention to the one in
1935, that it doesn't even bear a copy of the signa-
ture.

Mr. JewTell : I will stipulate that the signature is
the same as it is on the 1934.

Mr. Meserve: We offer in evidence the capital
stock tax return of the Plaintiff corporation for the
year 1934 as Plaintiff's Exhibit next in order. [233]

The Clerk: Plaintiff's Exhibit 62 in evidence.

Mr. Meserve: And the one of 1935 as Plaintiff's
Exhibit 63, is that correct ?

The Clerk: Plaintiff's Exhibit 63 in evidence.
(The documents referred to were received in
evidence and marked Plaintiff's Exhibits Nos.
62 and 63," respectively.)

PLAINTIFF'S EXHIBIT No. 62

1934 Return

of

Capital Stock Tax

For Year Ending June 30, 1934

Domestic Corporations

This return must be filed with the Collector of

Internal Revenue for your district on or before

236 United States of America vs.

(Testimony of J. Leslie Morris.)

July 31, 1934, and the tax must be paid on or before

that date.

1. Name — J. Leslie Morris Co., Inc.

2. Address — 1361 So. Hope St., Los Angeles,
Calif.

3. Name of parent company, if any — (Dis-
trict Filed— )

4. Name of subsidiary if any — No. shares
held— (District filed— )

5. Nature of business in detail — Rebabbitting
Connecting Rods.

6. Incorporated or organized in State of Cali-
fornia.

[Endorsed]: Plaintiff's Exhibit No. 62. Filed
5/29, 1940. R. S. Zimmerman, Clerk. By B. B. Han-
sen, Deputy Clerk.

PLAINTIFF'S EXHIBIT No. 63

1935 Return

of

Capital Stock Tax

For Year Ending June 30, 1935

Domestic Corporations

This return must be filed with the Collector of

Internal Revenue for your district on or before

July 31, 1935, and the tax must be paid on or before

that date.

1. Name — J. Leslie Morris Co., Inc.

J . Leslie Morris Co., Inc. 237

(Testimony of J. Leslie Morris.)

2. Address — 1361 So. Hope St., Los Angeles,
Calif.

3. Name of parent company, if any — (Dis-
trict Filed— )

4. Name of subsidiary if any — No. shares
held— (District filed— )

5. Nature of business in detail — Rebabbitting
Connecting Rods.

6. Incorporated or organized in State of Cali-
fornia.

[Endorsed]: Plaintiff's Exhibit No. 63. Filed
5/29, 1940. R. S. Zimmerman, Clerk. By B. B. Han-
sen, Deputy Clerk.

Mr. Meserve: The same understanding or stipu-
lation, Mr. Jewell, as to the State of California
Bank and Franchise Tax Return for the calendar
year 1935?

Mr. Jewell: No objection that it is not the best
evidence.

Mr. Meserve: We will offer it as Plaintiff's Ex-
hibit next in order.

The Clerk Plaintiff's Exhibit 64 in evidence.
(The document referred to was received in
evidence and marked " Plaintiff's Exhibit No.
64.")

238 United States of America vs.

(Testimony of J. Leslie Morris.)

PLAINTIFF'S EXHIBIT No. 64

State of California

BANK AND CORPORATION FRANCHISE
TAX RETURN

This return must be filed with the Franchise Tax
Commissioner within two months and fifteen days
after the close of the income year, together with
Remittance Payable to State Treasurer.

(Space for name and address)

1. Exact corporate title — J. Leslie Morris Co.,
Inc. Corporate number —

2. Mail Address— 1361 So. Hope St., Los An-
geles, Calif.

3. Date of Incorporation — Oct. 14, 1925.

4. Under laws of Calif.

5. Date began business in California — Oct. 14,
1925.

6. Kind of business — Motor Bearings

Copy Items 1 to 27 From Page 2, Corporation
Federal Income Tax Return for the Year 1935, or
the Fiscal Year Commencing and Ending

Item Gross Income

No.

* # # # # # #

[Endorsed]: Plaintiff's Exhibit No. 64. Filed
5/29, 1940. R, S. Zimmerman, Clerk. By B. B. Han-
sen, Deputy Clerk.

Mr. Meserve : That is all.

J. Leslie Morris Co., Inc. 239

(Testimony of J. Leslie Morris.)

Recross Examination
By Mr. Jewell :

Q. Mr. Morris, you stated that during the tax-
able period you had no warehouse service. What did
you mean?

A. No warehouse service; that we did not have
the warehouses you referred to yesterday during
that period. Your question yesterday read: Do you
have them? The answer was in the present tense.

Q. Are you referring to warehouses in Boston,
Kansas [234] City, Minneapolis, New Orleans?

A. Yes.

Q. At that time you had no warehouse service
of the type described ?

A. Yes, I had a chance to look it up overnight.

Q. And all you did have were your own plants?

A. Those six that you mentioned.

Q. That's New York, Chicago, Columbus, Port-
land, Seattle, and Los Angeles ? A. Yes.

Q. Mr. Morris, when you stated that you had a
guarantee onl4y as to materials and workmanship,
you were referring to a guarantee that could be
found where?

A. I don't think we ever mentioned it, sir. It is
common practice for the industry to guarantee ma-
terial and workmanship on any work that is per-
formed. I am very sure we never advertised it, be-
cause it is not necessary. If we did, that is what it
would cover. It is the practice of the repair indus-
try to guarantee the materials they use, and the
labor that is necessary to perform it.

240 United States of America vs.

(Testimony of J. Leslie Morris.)

Q. And to your knowledge, there is no such guar-
antee in any prospecti or advertising that you have ?

A. I don't recall it at the moment.

Mr. Jewell: That is all.

Mr. Meserve: That is all from this witness.

The Court: I want to ask a question on the
warehouse [235] feature counsel asked about this
morning.

In these six units that have been mentioned here
this morning, do you ship from Los Angeles to
them any of these red boxes containing processed
connecting rods?

The Witness : Yes, we do.

The Court: So then the only difference between
the situation as it existed during the taxable period
and that which later came up was that you had no
warehouse in the sense that the receptacle did not
do any processing itself, but simply received the
product from you?

The Witness: May I get that clear?

The Court: Read it.

(The question referred to was read by the re-
porter, as follows:

"Q. So then the only difference between the sit-
uation as it existed during the taxable period and
that which later came up was that you had no ware-
house in the sense that the receptacle did not do
any processing itself, but simply received the prod-
uct from you?")

The Witness: Yes.

J. Leslie Morris Co., Inc. 241

(Testimony of J. Leslie Morris.)

The Court: Received the product from your
manufactory here in Los Angeles, or one of these
other six manufactories you have testified to? I am
not using " manufacture" in any technical sense at
all.

The Witness: Yes; we did not have the six
which I mentioned doing babbitting work right
on the premises. We [236] had no warehouse stocks.
That we did develop later on, after the taxable
period.

The Court: In these establishments that were
doing babbitting on the premises, was the product
that they sold or distributed to the trade exclu-
sively the product which you fabricated on the
premises, or did they receive some of your stock
which had been fabricated ?

The Witness: No, fabricated on the premises.

The Court : They did not receive any stock from
the Los Angeles stock?

The Witness: No. I might qualify that. I be-
lieve the New York branch toward the latter part
of this taxable period did receive some shipments
from Columbus, but that was all. Substantially they
all did their own babbitting service.

The Court: Then was there any difference, es-
sential difference, between the method of distribu-
tion through the warehouse than there was when
you had no warehouse facilities?

The Witness: No. Do you mean the conditions
today? We had no warehouses at all at that time,

242 United States of America vs.

(Testimony of J. Leslie Morris.)
other than in connecting with the babbitting estab-
lishment.

The Court: But you, did have a warehouse in
connection with the babbitting establishments

The Witness: We had what might be termed a
shipping room, with stock on the shelves.

The Court : I am differentiating between a ship-
ping [237] room per se and a warehouse. By " ware-
house," I mean this: A depository that receives a
product from the place where it is manufactured
or produced, and simply has it there for storage pur-
poses to deliver as the occasion requires, as distin-
guished from the place where the product is actu-
ally produced.

The Witness: We had none during the taxable
period.

The Court: But you did have, as I understand
your testimony, — you did have, in connection with
these branch organizations that you have testified
to, these six, in addition to the tools that were pres-
ent there with which to practice the method, a re-
ceptacle, or a place, where the product as made, or
as processed in Los Angeles, or in other factories,
was stored for the purposes of emergency.

The Witness: Yes, we sold it from that room,
just as we have here. We have an accumulation of
connecting rods babbitted, and the answer to your
question, I think, is yes, we did. We had a shipping
room, a stock room, with the stock in it, in con-
nection with each one of these babbitting plants.

The Court: But wouldn't it be as I said? I
might not make the distinction, but what I am try-

/. Leslie Morris Co., Inc. 243

(Testimony of J. Leslie Morris.)
ing to ascertain is whether, regardless of what we
call it, whether we call it a warehouse or a branch
factory, or a branch processing- place, or a machine
shop or a garage, I am trying to ascertain whether
there is any difference, insofar as the business [238]
activity was concerned, when you used the facilities
of a warehouse — what you call warehouse service, —
I think counsel used that term.

The Witness: Yes.

The Court : The Court understands by warehouse
service, a service where the connecting rod itself,
and the parts that you process on it — the work isn't
done there?

The Witness : No.

The Court: The instrumentality itself is there
in a box and is stored in the warehouse ?

The Witness: Yes.

The Court: Where does that instrumentality
come from to the warehouse?

The Witness: It is shipped from the nearest
plant.

The Court: During the taxable period did you
have that same facility in connection with the ma-
chine shop that also practiced the method ?

The Witness: Yes, sir.

The Court: So that the machine shop in Chi-
cago, we will say, had a warehouse into which is
stored connecting rods that had been serviced by
units of the business organization other than Chi-
cago, is that right?

244 United States of America vs.

(Testimony of J. Leslie Morris.)

The Witness: No, sir, because Chicago was the
plant that had its own babbitting equipment, and
they would have no rods in stock that they didn't
babbitt right at Chicago.

The Court: Would that be true with all of the
other [239] places?

The Witness: That would be true with all of
the other places.

The Court: All of the six?

The Witness: All of the six that we spoke of,
yes.

The Court: That is all.

Mr. Meserve : Mr. Jewell, wTould it be acceptable
as a statement, by the Government, that connecting-
rods, as manufactured by the maker whose name
appears on the rod, were subject to the tax provided
by Section 606 of the Revenue Laws at the time of
their original manufacture, if manufactured after
the effective date of the Act ?

Mr. Jewell: I would have no objections to the
statement, but whether or not they were taxed is
a matter I don't know.

The Court: Taxable.

Mr. Meserve : I said taxable ; were subject to the
tax. I am not asking the Government to stipulate
that the manufacturer paid the tax, because they
may have evaded it.

Mr. Jewell: I hesitate to state which particu-

J . Leslie Morris Co., Inc. 245

lar taxing statute was used by the particular Col-
lector as to General Motors, Ford, or any of the
automobile manufacturers. I am not familiar with
the levying of that type of tax, because I have never
happened to have the occasion to have a case of
that type.

The Court: It would not make any difference
about the [240] activity of the Collector or Com-
missioner. He isn't the law. He is speaking about
the effect of the law, of the statute.

Mr. Jewell: I am not the Court. I can't give
a legal opinion about the matter.

The Court: He isn't asking you about that at
all. He is trying to save a lot of time, which I think
is perfectly proper, if he can be saved. Section
606 as it appeared at the applicable time, as I read
it here, reading from Title 26 U. S. C. A., denomi-
nated Manufacturers' Excise Taxes; Act of 1932,
Section 606. Tax on Automobiles, etc. "There is
hereby imposed upon the following articles sold
by the manufacturer, producer, or importer, a tax
equivalent to the following percentages of the price
for which so sold :

"(a) Automobile truck chassis and automo-
bile truck bodies (including in both cases parts
or accessories therefor sold or in connection
therewith or with the sale thereof.), 2 percen-
tum. A sale of an automobile truck shall, for
the purposes of this sub-section, be considered
to be a sale of the chassis and of the body."

246 United States of America vs.

The remaining portions of the Act, as they are
found in this volume which I am reading from, re-
late to amendments which occurred subsequently.
Is it conceded by both of you that the provision
which I read was the selling provision that was in
effect during the applicable taxable times involved
in this case ? [241]

Mr. Meserve: There is Section (c), Section 606.
The Court: Is (c) the same as the old Act, as
it now is?

Mr. Jewell : I believe it w^as.
Mr. Meserve: That is correct.
The Court : That reads :

"(c) Parts or accessories (other than tires
and inner tubes) for any of the articles enum-
erated in Sub-Section (a) or (b), 2 percentum.
For the purposes of this sub-section and Sub-
Sections (a) and (b), sparkplugs, storage bat-
teries, leaf springs, coils, timers, and tire chains,
which are suitable for use on or in connect ion
with, or as component parts of, any of the ar-
ticles enumerated in Sub-Section (a) or (b),
shall be considered parts or accessories, for such
articles, whether or not primarily adapted for
such use. This sub-section shall not apply to
chassis or bodies for automobile trucks or other
automobiles. Under regulations prescribed by
the Commissioner, with the approval of the
Secretary, the tax under this sub-section shall
not apply to the case of sales of parts or ac-
cessories by the manufacturer, producer, or im-

/. Leslie Morris Co., Inc. 247

porter to a manufacturer or producer of any
of the articles enumerated in Sub-Section (a)
or (b). If any such parts or accessories are
resold [242] by such vendee otherwise then on
or in connection with, or with the sale of, an
article enumerated in Sub-Section (a) or (b),
and maunfactured or produced by such vendee,
then for the purposes of this section, the ven-
dee shall be considered the manufacturer or
producer of the parts or accessories so re-
sold."

Now, is it conceded that these three sections in
the statute, as they appear in this volume, were the
statutes that were in effect at the time of the ap-
plicable taxable period?

Mr. Jewell: That's conceded.

Mr. Meserve : That is conceded.

The Court: What is the other part, of your re-
quest for a stipulation?

Mr. Meserve: That the tax on connecting rods
that were used in connection with Plaintiff 's busi-
ness, that bore the name of a manufacturer, either
by identification number or name, were subject
to the tax as to the rods that were manufactured,
after the effective date of the Act, my point being,
in explanation, that the connecting rods were tax-
able. We don't know whether the tax was paid that
was issued. We are not asking the Government to
say that. They may have evaded it. I have talked this
over with Mr. Jewell, but we want it understood
that there was tax collectible and levied on that

248 United States of America vs.

connecting rod, as an automotive part, [243] by
the manufacturer thereof before it came in to us for
rebabbitting by the Plaintiff corporation, and that
connecting rod had actually been manufactured aft-
er 1932, or the effective date of the Act. Do I make
myself clear?

The Court, : I understand what you say.

Mr. Jewell: I have no right to make any such
concession. I don't think it would be much of a
concession. All he is asking me for is a legal opin-
ion by way of stipulation or concession. I assume
that they were taxed, and are taxable or were tax-
able.

The Court: I think you are correct. I think
it is a legal conclusion.

Mr. Jewell: Furthermore, it has no materiality
unless it was taxed. Merely being taxable is not
sufficient.

Mr. Meserve: If wTe accept it as a legal conclu-
sion, I am perfectly satisfied.

The Court: You can accept this from the Court,
that it was taxable.

Mr. Meserve : Thank you.

Mr. Jewell : But not from counsel.

Mr. Meserve: Plaintiff rests.

The Court: I want it understood, in connection
with that last statement, so that both of you will
not be misled, that the Court is referring to what
it calls new connecting rods and is not referring
to reconditioned or reprocessed or later as-
sembled connecting rods; but it is referring
to the [244] instrumentality as it either comes in
the vehicle or as it comes separate and apart from

/. Leslie Morris Co., Inc. 249

the vehicle, from the manufacturer to its dealers,
whoever they may be, or to the consumer, whoever
he may be.

Mr. Meserve: That is correct. That's the way we
understand it.

The Court: All right.

(Discussion as to time of argument and briefs,
omitted from transcript.)

The Court: There is only one point which Mr.
Morris discussed, where he felt he had not ex-
pressed himself as Mr. Meserve thought he had. I
think that should be cleared up, and the record tran-
scribed as to that.

Mr. Meserve: I think it has been cleared up by
the correction.

The Court: It has been cleared up so far as
Mr. Morris is concerned. It has not been cleared
up so far as the Court is concerned. Over the noon
hour you probably can get the reporter to give you
the portion of the testimony — either read his notes
to you, or have them transcribed so that they can
be used. I think we will have the oral argument
this afternoon for such time as I feel I should have,
with the limitation by the Court as to what is rea-
sonable. I want to say this now, so that you can mar-
shal your arguments within the scope that is in the
Court's mind: Of course, the burden is on the tax-
payer in this case, because [245] he has brought
the action and he must show, so far as the factual
situation is concerned, by a preponderance of the
evidence, that he was not a manufacturer or pro-
ducer within the meaning of the statute which has

250 United States of America vs.

been read. On the other hand, if there is a ques-
tion where factually there is a very close balance,
the Court is going to give the taxpayer the bene-
fit of it. I don't know whether that question will
arise or not, but those are two questions of fact
that you gentlemen should address yourselves to.
The legal situation can be argued as you desire, with
particular attention paid to these conflicting deci-
sions that have been cited by the Commissioner. We
will meet at 2:00 o'clock.

(Whereupon, at 12:00 o'clock noon a recess was
taken until 2:00 o'clock p. m. of the same date.)

[246]
Los Angeles, California
Wednesday, May 29, 1940
2:00 O'Clock P.M.
Mr. Meserve: With your Honor's permission, I
would like to have the case reopened on behalf of
the plaintiff corporation to clear one matter we dis-
cussed with reference to the use of the phrase "Your
own rods," as wre were discussing this morning.
The Court: No objection.
Mr. Jewell: No objection.

LESLIE J. MORRIS

the witness on the stand at the time of recess, hav-
ing been previously duly sworn, resumed the stand
and further testified as follows :

Direct Examination
By Mr. Meserve:

Q. Mr. Morris, on cross examination you were
asked the following question by Mr. Jewell on be-

J. Leslie Morris Co., Inc. 251

(Testimony of J. Leslie Morris.)

half of the Government : "Q. Have any dealers ever

sent you any rebabbitted rods?"

And your answer was: "A. Yes, sometimes they
have sent some of our own, which we have rebab-
bitted for them."

I attempted this morning to have you inform us
what you meant by that phrase, "some of our own."
Will you explain that answer %

A. Yes, it is perfectly clear to me now. I meant
[247]' when we went over to purchase a connecting
rod to send to some person who had bought them
from us, and we did not have them in our stock,
that they would quite frequently sell to me a con-
necting rod which I had rebabbitted for them just
previously, or possibly a month previous or a week.
That is what I meant. I did not mean they were
rods I had ever furnished them. They had sent
them to me to rebabbitt and they took them back,
of course, when I rebabbitted them; and when I
needed it for some other customer, they would send
it back. I have heard the clerk say, "You can't
complain about the rebabbitting on these rods, be-
cause you did it yourself."

Q. What price did you pay on that occasion?

A. Paid exactly the same price as if taken out
of stock, which had come from the factory ; in other
words, I paid the retail price on the connecting rod,
because I was buying from them ; both the connect-
ing rod itself, and the babbitting service.

The Court: You paid to them your list price?

The Witness: Yes, our list price, because that
was just about the same as theirs.

252 United States of America vs.

(Testimony of J. Leslie Morris.)

The Court : Just about the same 1

The Witness: I paid their list price, not ours
for the sale of the connecting rod.

The Court: How did their list price compare
with yours?

The Witness : About the same. I am speaking of
the [248] complete unit, That would be our service
for the babbitting, and a deposit for the connect-
ing rod; those two added would be just about what
you would pay the agents for the connecting rod.

By Mr. Meserve :

Q. Referring further, Mr. Morris, to the same
examination, this question was asked :

"Q. That occurred on occasions when you wanted
to purchase rods to keep your supply built up to fa-
cilitate your exchange service?"

And your answer was :

"A. That is right.

UQ. They have shipped you one of your own
rods?"

In using that same phrase, "one of your own
rods," you had the same reference to that same
arrangement you have just now explained?

A. One which we have babbitted.

The Court : That was the question.

Mr. Meserve: The answer was "A. They have
shipped us a great many of them. We have gotten
them back many times."

The Witness : I mean the rods that we have bab-
bitted for them they sold to us.

The Court: That is all. [249]

J. Leslie Morris Co., Inc. 253

(Testimony of J. Leslie Morris.)

Cross Examination
By Mr. Jewell :

Q. You indicated that the rods which you ob-
tained in that fashion from the dealer were rods
which they had sent to you, and you had rebabbit-
ted and sent them back. You don't mean to imply
that those were necessarily the same rods which
they sent to you, but they were rods which they
had merely, perhaps, received back in place of the
rods which they had sent to you of the same size.

The Court: That is too involved. Can't you sim-
plify that?

The Witness: It would mean the same thing.

By Mr. Jewell :

Q. You implied there that the rods that you have
purchased from the dealer were rods which they
had sent to you, which you had rebabbitted and
sent back? A. Yes.

Q. Did you mean exactly that?

A. For this reason, to visualize the transaction
as it would happen: The rods which we had to get
from them would be invariably later model rods,
rods that were hard to get; that they had not sold
yet. In fact, I would send over an order for two
sets, and they would give me one, and would tele-
phone and say, "Morris, we have only two. We can't
let you have them. We need one." But they would
send that one over willingly, to have me babbitt-
that, and [250] put it back in stock.

Q. The connecting rods you would have occa-

254 United States of America vs.

(Testimony of J. Leslie Morris.)

sion to purchase would fall within the 10 per cent ?

A. Yes. If it was a rod which I had plenty of,
I would probably not be buying over there. I
couldn't determine whether I had babbitted them
myself or not.

Mr. Jewell : That is all.

The Court: Is that all, gentlemen?

Mr. Meserve : That is all.

(Witness excused.)

[Endorsed] : Filed Mar. 25, 1941. [251]

[Endorsed]: No. 9746. United States Circuit
Court of Appeals for the Ninth Circuit. United
States of America, Appellant, vs. J. Leslie Morris
Company, Inc., a corporation, Appellee. Transcript
of Record. Upon Appeal from the District Court
of the United States for the Southern District of
California, Central Division.

Filed February 17, 1941.

PAUL P. O'BRIEN,

Clerk of the United States Circuit Court of Ap-
peals for the Ninth Circuit.

J. Leslie Morris Co., Inc. 255

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

No. 9746

(District Court— No. 433-M)

UNITED STATES OF AMERICA,

Appellant,
vs.

J. LESLIE MORRIS COMPANY, INC.,

Appellee.

STATEMENT OF POINTS UPON WHICH
APPELLANT INTENDS TO RELY ON AP-
PEAL.

Pursuant to Rule 19, subdivision 6 of the Rules
of the Circuit Court of Appeals for the Ninth Cir-
cuit, the following is the statement of points upon
which appellant intends to rely on appeal :

I.

The court erred in determining that the sales of
connecting rods by the appellee, during the tax-
able period involved herein, were not sales of auto-
mobile parts or accessories by a manufacturer with-
in the purview of Section 606 (c) of the Revenue
Act of 1932.

Dated: February 5, 1941.

WILLIAM FLEET PALMER,

United States Attorney.
E. H. MITCHELL,

Assistant United States Attorney.

256 United States of America vs.

ARMOND MONROE JEWELL,

Assistant United States Attorney.
By ARMOND MONROE JEWELL,

[Endorsed] : Piled Feb. 17, 1941. Paul P. O'Brien,
Clerk.

[Title of Circuit Court of Appeals and Cause.]

APPELLANT'S DESIGNATION OF THE MA-
TERIAL PORTIONS OF THE RECORD ON
APPEAL WHICH ARE, THEREFORE, TO
BE PRINTED.

Pursuant to the provisions of Rule 19, Subdivision
6, of the Rules of the United States Circuit Court
Of Appeals For The Ninth Circuit, Appellant here-
by designates those portions of the Record On Ap-
peal in above entitled cause which it desires printed
in the Transcript Of Record, as follows :

1. Complaint (R. pp. 2 to 15, inclusive)

2. Answer (R. pp. 17 to 25, inclusive)

3. Substitution of Attorneys (R. pp. 27 and 28)

4. Order for Judgment (R. p. 32)

5. Conclusions of the Court (R. pp. 33 to 36,
inclusive)

6. Findings of Fact, and Conclusions of Law
(R. pp. 37 to 55, inclusive)

7. Judgment (R. p. 56)

8. Notice of Apeal (R. p 57)

J. Leslie Morris Co., Inc. 257

9. Orders Extending Time To File Record And
Docket Cause On Appeal (R. pp. 58 and 59)

10. Order Permitting Originals To Be Sent To
Circuit Court In Lieu Of Copies (R. p. 60)

11. Designation of Record On Appeal (R. pp.
61 and 62)

12. Plaintiff's Exhibits 1 to 32, inclusive

Note: Please print these exhibits in the same
manner as in the case of United States of
America vs. Armature Exchange Inc., No.
9469.

13. Plaintiff's Exhibit 43, print: one invoice (the
second from the top).

14. Plaintiff's Exhibit 45, print: all of the top
page; and first inside page down to and including
the line commencing with Stock No. 25; and the
statement at the bottom of the last page.

15. Plaintiff's Exhibit 47, print: all of the top
page.

16. Plaintiff's Exhibit 49, print: all of the out-
side of the top cover; all of the inside of the top
cover; and all of both sides of the next page which
follows the top cover; and "Page 1" down to and
including the line containing the listings opposite
the name "Ajax"; also the inside of the back cover.

17. Plaintiff's Exhibit 50, print: picture of box
showing the label on its end.

18. Plaintiff's Exhibit 55, print: the heading at

258 United States of America vs.

the top merely down to and including the line oppo-
site the word "Assets".

19. Plaintiff's Exhibit 61, print : all.

20. Plaintiff's Exhibit 62, print: top page down
only to and including the line opposite Item 6.

21. Plaintiff's Exhibit 63, print: top page down
only to and including the line opposite Item 6.

22. Plaintiff's Exhibit 64, print: top of the first
page of the printed form down to the words "Gross
Income" which are printed in the center of the page
in large type.

23. Defendant's Exhibit A, print: the invoice
that is second from the top.

24. Defendant's Exhibit B, print: down through
paragraph "Second".

25. Defendant's Exhibit C, print: top page down
only through the line opposite Item 6.

26. Defendant's Exhibit D, print: top page of
printed form down only to the words "Gross In-
come" which are printed in the center of the page
in large type.

27. Defendant's Exhibit E, print: top page of
printed form down only to the words "Gross In-
come" which are printed in the center of the page
in large type.

28. Defendant's Exhibit F, print: top page of
printed form down only to the words "Gross In-
come" which are printed in the center of the page
in large type.

J. Leslie Morris Co., Inc. 259

29. All of the Reporter's Transcript, Excepting
and Omitting the following portions: p. 70, 1. 13
to p. 84, 1. 5; p. 85, 1. 20 to p. 97, 1. 11; p. 98, 1. 10
to p 102, 1. 1 ; p. 103, 1. 8 to p. 105, 1. 21 ; p. 189, Is.
13 and 14.

Dated: February 5, 1941.

WILLIAM FLEET PALMER,

United States Attorney.
E. H. MITCHELL,
Assistant United States Attorney.

ARMOND MONROE JEWELL,
Assistant United States Attorney.
By ARMOND MONROE JEWELL.

[Endorsed]: Filed Feb. 17, 1941. Paul P. O'Brien,
Clerk.

[Title of Circuit Court of Appeals and Cause.]

APPELLEE'S DESIGNATION OF MATERIAL
PORTION OF THE RECORD TO BE
PRINTED IN ADDITION TO PORTION
OF RECORD DESIGNATED BY APPEL-
LANT.

Pursuant to the provisions of Rule 19, Subdivision
6, of the Rules of the United States Circuit Court
of Appeals for the Ninth Circuit, appellee hereby
designates that portion of the record on appeal in
the above entitled cause which it desires printed in
the transcript of record in addition to the portions
of the record designated by appellant, as follows:

260 United States of America vs.

1. That portion of the Reporter's Transcript, to
wit: p. 85, 1. 20 to p. 97, 1. 11, said portion of the
Reporter's Transcript having been omitted by ap-
pellant in its designation, (see 1. 20, p. 3, appellant's
designation)

Dated: February 24, 1941.

DARIUS JOHNSON AND
MESERVE, MUMPER &
HUGHES.
By E. AVERY CRARY

Attorneys for Appellees.

[Endorsed]: Filed Feb. 25, 1941. Paul P. O'Brien,
Clerk.

No. 9746.
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

United States of America,

Appellant,
vs.

J. Leslie Morris Company, Inc., a corporation,

Appellee.

BRIEF FOR THE UNITED STATES.

Samuel O. Clark, Jr.,
Assistant Attorney General.

J. Louis Monarch,
George H. Zeutzius,
Special Assistants to the Attorney General.
Washington, D. C,

Wm. Fleet Palmer,

United States Attorney.
E. H. Mitchell,

Assistant United States Attorney,
Armond Monroe Jewell,

Assistant United States Attorney.
United States Post Office and Court House
Building, Los Angeles,

Parker & Baird Company, Law Printers, Los Angeles.

TOPICAL INDEX.

PAGE

Opinion below 1

Jurisdiction 1

Question presented 2

Statute and regulations involved 2

Statement 2

Statement of points to be urged 17

Summary of argument 18

Argument 20

I.

The transactions involved constituted sales of automobile parts
within the meaning of the statute, which is a revenue meas-
ure exclusively, and is to be construed accordingly 20

II.

Appellee is the manufacturer or producer of the Moroloy con-
necting rods sold by it and not merely a repairer of second-
hand, damaged and worn-out connecting rods 31

III.

The applicable decisions support the contention that appellee
is a manufacturer or producer of automobile parts within
the purview of the taxing statute 37

IV.

The Government's position is also supported by the Treasury
Regulations which in the light of the history and reenact-
ment of the taxing provisions without material change have
been given Congressional approval 48

Conclusion 52

11.

TABLE OF AUTHORITIES CITED.

Cases. page

Armature Rewinding Co. v. United States, decided Sept. 30,
1940 47

Bardet v. United States, decided May 18, 1938 46

Becker-Florence Co. v. United States, decided Dec. 27, 1938 46

Biltrite Tire Co. v. The King, 1937 Canada Law Rep. 364....3S, 44

Cadwalader v. Jessup & Moore Paper Co., 149 U. S. 350

32, 39, 40

Carbon Steel Co. v. Lewellyn, 251 U. S. 501 29

City of Chicago v. Reinschreiber, 121 111. App. 114 42

City of Duluth v. Bloom, 55 Minn. 97 42

City of Louisville v. Zinmeister & Sons, 188 Ky. 570 42

Clawson & Bals v. Harrison, 108 Fed. (2d) 991, certiorari
denied, 309 U. S. 685 23, 27, 32, 33, 34, 35, 37, 38, 43, 51

Con-Rod Exchange, Inc. v. Henricksen, 28 Fed. Supp, 924.-46, 47

Cotton Tie Co. v. Simmons, 106 U. S. 89 40

Davis Electrical Works v. Edison Elec. Light Co., 60 Fed. 276—. 41

Edelman & Co. v. Harrison, decided April 7, 1939 37

Federal Mogul Corp. v. Kavanagh 44

Federal Mogul Corp. v. Smith, decided Fed. 23, 1940 34, 35, 38

First Nat. Bank, In re, 152 Fed. 64 43

Foss-Hughes Co. v. Lederer, 287 Fed. 150 39

Founders General Co. v. Hoey, 300 U S. 268 28

Hartranft v. Wiegman, 121 U. S. 609 47

Helvering v. Reynolds Tobacco Co., 306 U. S. 110 50

Hempy-Cooper Mfg. Co. v. United States, decided May 6, 1937 46

Hughes & Co. v. City of Lexington, 211 Ky. 596 29

King, The v. Biltrite Tire Co., 1937 Canada Law Rep. 1 38, 44

111.

PAGE

King, The, v. Boultbee, Ltd. (1938), 3 Dominion Law Rep. 664
32, 38

Klepper v. Carter, 286 Fed. 370 39

Melnick v. City of Atlanta, 147 Ga. 525 42

Monteith Brothers Co. v. United States, decided Oct., 1936 46

Moore Bros., Inc. v. United States, decided May 14, 1940 38

Motor Mart v. United States, decided May 14, 1940 38

Raybestos-Manhattan Co. v. United States, 296 U. S. 60 28

Stone v. White, 301 U. S. 532 30

S. & R. Grinding & Machine Co. v. United States, 27 Fed.
Supp. 429 44

Turner v. Quincy Market Cold Storage & Warehouse Co., 225
Fed. 41 29

Tyler v. United States, 281 U. S. 497 28

United States v. Armature Exchange, 116 Fed. (2d) 969, cer-
tiorari denied, May 5, 1941 19, 23, 26, 32, 37, 46, 47, 50

United States of America v. Moroloy Bearing Service of Oak-
land, No. 9786 23

Ward, Ltd. v. Midland R. Co., 33 T. L. R. 4 41

Statutes.

Internal Revenue Code:

Sec. 3400 (U.S.C., Supp. V, Title 26, Sec. 3400) 26

Sec. 3403 (U.S.C, Supp. V, Title 26, Sec. 3403) 50

Revenue Act of 1918, c. 18, 40 Stat. 1057, Sec. 900 49

Revenue Act of 1921, c. 136, 42 Stat. 227, Sec. 900 49

Revenue Act of 1924, c. 234, 43 Stat. 253, Sec. 600 49

Revenue Act of 1926, c. 267, 44 Stat. 9, Sec. 600 49

Revenue Act of 1928, c. 852, 45 Stat. 791, Sec. 421 49

IV.

PAGE

Revenue Act of 1932, c. 209, 47 Stat. 169 :

Sec. 606 2, 16, 17, 20, 30, 38, 50, 51

Sec. 623 24

Sec. 1111 25

Revenue Act of 1939, c. 247, 53 Stat. 862, Sec. 1 50

Revenue Act of 1940, c. 419, 54 Stat. 516:

Sec. 209 50

Sec. 210 50

Sec. 216 50

Miscellaneous.

56 Corpus Juris 884-885 41

S. T. 606, XI-2 Cum. Bull. 476 (1932) 51

S. T. 648, XII-1 Cum. Bull. 384 (1933) 51

S. T. 812, XIV-1 Cum. Bull. 406 (1935) 51

S. T. 896, 1940-2 Cum. Bull. 252 51

Treasury Regulations 46 (1932 Ed.) :

Art. 2 25

Art. 4 25, 26, 48, 49, 50

Art. 7 39, 48

Art. 41 25

Treasury Regulations 46 (1940 Ed.), Sec. 316.4 26, 48

Treasury Regulations 47 (1926 Ed.), Art. 26 49

Judicial Code, Sec. 128 1

INDEX TO APPENDIX.

Revenue Act of 1932, c. 209, 47 Stat. 169, Sec. 606 1

Treasury Regulations 46, approved June 18, 1932, Art. 4 1

Treasury Regulations 46, approved June 18, 1932, Art. 41 2

No. 9746.
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

United States of America,

Appellant,
vs.

J. Leslie Morris Company, Inc., a corporation,

Appellee.

BRIEF FOR THE UNITED STATES.

Opinion Below.

The memorandum opinion of the District Court [R.
32-36] is unreported.

Jurisdiction.

This is an appeal from a judgment of the District
Court entered August 21, 1940 [R. 61-62], in favor of
appellee for the refund of $1,500 assessed and paid as
manufacturer's excise taxes. Notice of appeal was filed
November 19, 1940. [R. 62-63.] Orders extending the
time for filing and docketing the record on appeal were
duly obtained. [R. 63-64.] The jurisdiction of this
Court is invoked under Section 128 of the Judicial Code,
as amended February 13, 1925.

— 2—

Question Presented.

Whether sales of automobile connecting rods by appel-
lee were taxable under Section 606(c) of the Revenue
Act of 1932, which imposed a tax upon automobile parts
"sold by the manufacturer, producer, or importer''
thereof.

Statute and Regulations Involved.

These are set forth in the Appendix, infra, pp. 1-2.

Statement.

The case was tried to the court without a jury upon
evidence consisting of the testimony of two witnesses
offered by appellee and numerous exhibits offered by each
of the parties. The court rendered a memorandum opin-
ion [R. 32-36] and filed findings of fact and conclusions
of law [R. 36-60] in favor of appellee. The facts, as
disclosed by the undisputed evidence, may be summarized
as follows:

Appellee was incorporated in 1925 [R. 77], under the
laws of California to "operate a business for the manu-
facture, sale and distribution of automotive and industrial
bearing metals and products" and to "operate branch
plants and offices in the State of California and elsewhere
for the manufacture, sale and distribution of such metals
and products." [R. 37.] Its principal place of business
was in Los Angeles. [R. 37.] During the taxable period,
it was engaged in producing [Pltf's Ex. 49] and selling
[R. 39, 45, 59] automobile connecting rods, under the
copyrighted trade name "Moroloy" [Pltf's Ex. 49; R. 193,
218], throughout the United States to wholesalers, known
also as jobbers [R. 79, 102, 172] on the exchange basis

— 3—

of sale [Pltf's Ex. 49; R. 84, 197], for replacement [R.
177] purposes in connection with the repairing of auto-
mobile motors by garage men and mechanics [R. 83, 85],

A connecting rod is the means of transmitting energy
created by the explosion of gas and air in the cylinder in
the piston head, to the crank shaft. It connects the piston
(by being attached to the crank pin) to the crank shaft.
[R. 89.] There is a babbitt bearing (known as the crank
shaft bearing) in the large end of the connecting rod.
[Pltf's Ex. 34.] The babbitt bearing is within the parts
of the rod known as the cap and shank which are held
together by two bolts and nuts. [R. 108.] The smaller
end of all rods is known as the wrist pin end. At least
half of the rods produced by appellee during the taxable
period had bronze bushings in the smaller end of the shank
[Plft's Ex. 26], such as in the case of Ford rods [Pltf's
Ex. 31], and some of the rods were of the type which
required shims [R. 174-175].

Appellee owned and operated plants or factories in Los
Angeles, New York, Chicago, Columbus, Portland, and
Seattle, for the carrying on of its connecting rod opera-
tions and sales [R. 163, 239, 241] and was affiliated with
various other plants throughout the United States and
Canada which it did not own [R. 43-44, 189, 192-193].
One of the affiliated plants is at 2354 Valley Street, Oak-
land, California.1 [R. 189, 194.] The Oakland plant
pays appellee a monthly royalty of 2% on its operations.
[R. 194.] Appellee handled its customers in exactly the
same way as did the Federal Mogul Corporation and auto-

!This is the Moroloy Bearing Service of Oakland, Ltd., which is appellee
in a similar case now pending in this Court on the Government's anneal
No. 9786. '

—A—

mobile manufacturers who engaged in similar business on
the exchange basis of sale for automobile replacement
parts. [R. 197.]

This case is concerned only with sales by appellee of
automobile connecting rods during the period June 21,
1932, to August 21, 1935. [R. 39, 45, 59.] It involves
appellee's stock of connecting rods produced from a com-
bination of new and used materials and sold to jobbers on
the exchange basis of sale for use by garage men and
mechanics in repairing automobiles. [Pltf's Exs. 1-32; R.
84, 197, 242.]

At Los Angeles, appellee had 12 to 14 persons engaged
in its production processes, including shipping and receiv-
ing. [R. 168.] There were about 20 employees in the
shop and office, together. [R. 167.] It employed about
18 persons at its Chicago plant and fewer persons at the
four remaining plants. [R. 168.] It did not employ
salesmen directly but did on a commission basis. [R. 171.]
The latter represented three or four different automotive
people and would sell to wholesalers. [R. 171.] Since the
taxable period, appellee has conducted part of its sales
through warehouses on consignment in various cities where
it has no plants.

In its operations, appellee uses divers pieces of equip-
ment, tools and machinery, including among other things
lathes, drill presses, arbor presses, milling machines,
grooving machines, hydraulic broaching machines, specially
built centrifugal casting machines, molds, slotting tools,
circular saws, cutting tools, babbitt pots, grinding wheels
and chamfering tools. [R. 40, 42, 43; Pltf's Exs. 1 to
32.]

— 5—

At its Los Angeles plant appellee produced about 400
rods a day. [R. 170.] Its Chicago plant produced about
the same number. [R. 164.] The Moroloy rods followed
the same line of operations as did rods comprised of en-
tirely new materials, so far as appellee's operations were
concerned. [R. 218.]

In connection with its processes, appellee purchased and
used new babbitt metal (consisting of tin, copper and
antimony), new shims, new nuts, new bolts and new bronze
bushings. [R. 138, 174, 197, 199, 214, 221, 223.] It
also used solutions of hydrochloric acid, oakite and rust
preventives. [Pltf's Exs. 8, 14 and 20.] The used shanks
and caps, known also as forgings, which were utilized in
its processes either were purchased by appellee from people
who made it their business to obtain them from wrecked
cars for the purpose of reselling them to appellee and
others engaged in similar business [R. 175, 183], or were
obtained by appellee from its jobbing customers who
turned them in on their purchases from appellee of com-
pleted rods of similar type on what is known in the trade
as the exchange basis of sale for replacement parts [R.
119-121, 196-197; Pltf's Ex. 49].

Appellee maintained a stock of hundreds of different
types of connecting rods and assigned to each a stock
number of its own, such as Stock No. 525, Stock No. 526,
etc., covering nearly all makes of automobiles. [Pltf's Ex.
49; R. 242.] Appellee's connecting rods were known by
and sold to the trade under appellee's own stock numbers
and copyrighted trade name "Moroloy." [Pltf's Ex. 49.]
The connecting rods sold by appellee functioned just as
efficiently as a rod of original manufacture. [R. 218.]
The rods were sold in appellee's own boxes, which con-

tained its stock number which conformed to the number
in appellee's catalogs and price lists. [R. 128-129, 144-
146.] Appellee guaranteed its product against defective
workmanship and material in the same manner as did
others in the industry. [R. 179.] If someone ordered a
rod which appellee did not have in stock, appellee purchased
either an entirely new rod or one comprised of both new
and used materials from a nearby dealer or distributor for
the purpose of filling the order. This occurred only now
and then with respect to the latest models. [R. 104.]

The following is a summary of appellee's processes and
operations which culminated in the production of Moroloy
connecting rods from a combination of used forgings of
dismantled connecting rods and new materials:

Automobile wrecking brokers2 [R. 104, 175; Pltfs Ex.
43, R. 124-126] and jobbers were appellee's source of
supply for the used forgings [R. 106, 196-197]. A very
few were received from automobile dealers. [Pltfs Ex.
1.] They were received by appellee in lots averaging from
twenty to sixty rods per package and were brought either
by the shippers' own delivery service, by parcel post,
trucking companies, or other delivery services. f Pltfs
Ex. 1.] About half of the babbitt bearing of the average
used rod was burned off or worn away when received by
appellee. [R. 200.] Half of the used rods had bronze
bushings at their smaller end and these, too, were worn
when they were received. [R. 223; Pltfs Ex. 26.] Both
the bronze bushing and the babbitt bearing are bearings
and it is necessary in order for a rod properly to perform
its function that the bushing, as well as the babbitt bear-
ing, be in first-class shape. [R. 223-224.]

2Automobile wreckers are known in the trade as "junkies.'

— 7—

Upon arrival, the used rods were checked against the
shipper's invoice and the boxes in which shipped and any
accompanying identification tags were discarded. [Pltf's
Ex. 2.] If any of the rods were cracked, bent, or broken,
appellee would not accept them but would return them to
the sender. [R. 107.] The shank and cap had to be in
good condition. [R. 107.] The used rods were segregated
according to their respective sizes or types and the thin
type bronze pin bushings were removed by means of a
cold chisel and hammer [Pltf's Ex. 3], whereas the
heavier type of bushings was removed on an arbor press
[Pltf's Ex. 4]. The two nuts and two bolts which
fastened the cap to the shank of each rod were removed.
A power driven socket wrench was used to remove the
nuts. [Pltf's Ex. 5.] The nuts and bolts which were in
good condition were thrown into a box for later use.
[R. 173.] No effort whatsoever was made to keep the
nuts and bolts separated so that thereafter they could be
placed back on the identical rod forging. [R. 173.]
Auxiliary bolts and nuts, which previously had been dipped
in solder, then were placed temporarily on the rods for
the purpose of subsequent operations. Otherwise, the
salvaged nuts and bolts would become immersed in solder
during the centrifugal casting operations and it was
desired that the appearance of the completed Moroloy rod
should resemble as nearly as possible the original condition.
[Pltf's Ex. 5.] Both loosening and tightening of all nuts
and bolts were accomplished by means of a power driven
socket wrench.

Two operations were involved in removal of the used
babbitt bearing. The babbitt bearing end of the rod was
placed in a pot of molten babbitt of low temperature pre-

pared each day by lighting a gas oven at five o'clock in the
morning in preparation for the day's run. [Pltf's Ex. 6.]
Such of the babbitt as was removed by placing the unit
in the low temperature pot was salvaged for the purpose,
subsequently, of mixing it with newly purchased babbitt
in proportions of half and half. [R. 200; Pltf's Ex. 6.]
The analysis of the old babbitt, thus salvaged, was exactly
the same as that of the new babbitt. [R. 200.] After
most of the babbitt was removed by the first operation, the
remaining babbitt clinging to the large opening in the
cap and shank was removed by dipping the large end of
the forging into pots containing a solution of molten
babbitt of a higher temperature. [Pltf's Ex. 6.] The
reason for removal of the babbitt by two operations was
that the babbitt in the low temperature receptacle could be
used again while the babbitt subjected to the higher tem-
perature became spoiled for further use. [Pltf's Ex. 6.]

After removal of all babbitt, the large end of the rod
was cleaned by dipping it into a vat containing a solution of
hydrochloric acid. [Pltf's Ex. 8.] Then a flux was
applied to the large end of the rod by dipping it into
molten tin or solder which served thereafter as a bond
and caused the new babbitt metal to stick to the steel for-
ging so as to become a part thereof. [Pltf's Ex. 8.]

Then the nuts were removed from the bolts holding the
cap to the shank and by means of a sharp blow the cap
itself was removed and two steel separators were inserted
between the cap and shank, one on each side. [Pltf's Ex.
9.] These separators prevented the rod and cap from
casting together when the molten babbitt thereafter was
poured. A power driven socket wrench was used both
for removing and tightening the nuts in connection with

the insertion of the separators. [Pltf's Ex. 9.]3 The
oil holes in the large end of the forging were caulked with
asbestos wicking, or other stoppers, to prevent the babbitt
from plugging up the oil holes during the subsequent
babbitt casting operation. [Pltf's Ex. 10.]

The forgings then were taken to the centrifugal casting
machines specially built by appellee for its own use. One
operator could run two of these machines because it took
the babbitt about 15 seconds to cast. [Pltf's Ex. 11.]
Each machine had a revolving shaft on which was mounted
a mold holder which was opened by means of a foot lever.
[Pltf's Ex. 11.] The large end of the rod forging was
placed between molds which cupped over each side thereof.
The mold holder was encased in a pan-caked shaped con-
tainer mounted perpendicularly to the floor. [Pltf's Ex.
12.] The center of the door to the container had an
aperture through which a small trough was affixed. The
end of the trough led down into the outer face of the
mold which was open. After the rod forging had been
set in the mold holder, as stated above, the door of the
container was closed and, by means of a foot lever, the
shaft and mold started to revolve spinning the rod with
the large bearing end of an axis. [Pltf's Ex. 12.] As
the shaft, mold and rod revolved, an operator poured
molten babbitt into the trough. The babbitt would run
down into the large bearing end of the rod and the cent-
rifugal force caused the molten babbitt to spread evenly

3Exhi1>it 9 states that in the case of rods for Model A Ford engines
the cap is cast to the bearing end of the rod. This is obviously an error
because the cap and shank must be severable in order to attach or detach
the rod to the crank shaft. However, Exhibit 24 states that the babbitt
is cast in Ford A connecting rods without the use of separator shims, but
the babbitt is thereafter cut through the center so as to free the cap from
the shank.

—10—

against the inside circular surface. [Pltf's Ex. 12.] Ap-
pellee babbitted about 20% of the rod forgings by a hand-
casting operation. [Pltf's Ex. 13.] A man would dip the
rods in the acid and tin. Then the cap and shank were
put separately into a fixture with the proper sized mold,
between which mold and the cap on the one hand, and the
mold and the shank on the other, an operator poured
molten babbitt metal. [Pltf's Ex. 13.] The parts then
were removed from the fixture and the surface babbitt
protruding as a result of the hand operation was chipped
off. [Pltf's Ex. 13.]

Thereafter, a number of rods were placed in a basket
which was lowered into a tank containing oakite where
they were cleaned. [Pltf's Ex. 14.] All auxiliary nuts
and bolts previously inserted together with steel separator
shims then were removed. [Pltf's Ex. IS.] All ragged
edges of the newly cast babbitt at the point where the
separator shims had separated the cap from the shank were
removed by holding the open face of the cap, or the shank,
as the case may be, against a revolving sandpaper disk.
[Pltf's Ex. 16.] The cap then was placed on the rod and
either new nuts and bolts, or salvaged nuts and bolts
which had been commingled, were inserted for the pur-
pose of clamping the cap to the arm or shank and were
tightened by a power driven socket wrench. [Pltf's Ex.
17; R. 173,214.]

In assembling the cap and shank, two new metal shims
were inserted, one on each side, if it was the type of rod
which required a shim. Only new shims were used by
appellee. [R. 174, 199; Pltf's Ex. 49.]

The operator then cleaned out the oil holes wherever
they occurred in each of the units by using a drill press.

—11—

[Pltf's Ex. 18.] Because all oil holes were not of the
same size, a second drill press with a larger drill also
was used to perform the same operation, thus removing
the necessity for frequently changing drills. [Pltf's Ex.
19.]

The rods, in groups, then were dipped in a tank con-
taining a solution of rust preventative and thereafter
hung on a rack to dry. [Pltf's Ex. 20.] After the dry-
ing process, each unit was placed in a lathe where
the newly cast babbitt was subjected to three operations.
It was bored, faced and chamfered. The latter two
operations finished the babbitt to standard width. [Pltf's
Ex. 21.] If special undersizes were required the babbitt
would be finished on a lathe to the desired undersize.
[Pltf's Ex. 22.]

Approximately 50% of the connecting rods have oil
pockets in their babbitt bearings. Consequently, appellee
subjected the babbitt portion of the rod to an operation
on a hand milling machine whereby the necessary oil
pockets, or grooves, were cut. [Pltf's Ex. 23.]

All Model A Ford and six cylinder Chevrolet connecting
rods required an oil groove on the face of the babbitt
bearing which was cut in the shape of a figure eight by
a hand operated oil groover. [Pltf's Ex. 28.] Certain
Pontiac models required a continuous oil groove around
the center of the babbit bearing. [Pltf's Ex. 29.] This
groove was cut by what was known as a center oil
groover operated by an electric motor. [Pltf's Ex. 29.]

On rods for Model A Ford engines in which the babbitt
was cast without the use of separator shims, it was neces-
sary to cut the babbitt through the center in order to
sever the cap from the shank. [Pltf's Ex. 24.] This

—12—

operation was performed with the aid of a slotting tool
and rotating saw. The application of the slotting tool
resulted in leaving a groove which would serve to facili-
tate lubrication. [Pltf's Ex. 24.] After being grooved,
the Model A rods were placed on a saw table where a
rotating saw blade completely severed the babbitt flange
and the cap and shank became separate units. [Pltf's
Ex. 25.]

The next operation was to install new bushings in the
smaller end of the shank through the medium of a hand-
operated arbor press. [Pltf's Ex. 26.] Model A Ford
connecting rods were fitted with a very thin bushing which
would become somewhat damaged when pressed in by the
arbor press. [Pltf's Ex. 31.] This was corrected by
placing the rods in a bench drill press and using a cham-
fering tool. [Pltf's Ex. 31.] The Ford rods required
a further operation of grooving or severing on the inside
of the bronze bushing. Half of the rods were of the type
that required the facing of the outer edge of the babbitt
flange by means of a special tool placed in a drill press.
[Pltf's Ex. 27.]

Thereafter, all babbitt bearings excepting only those
which were finished to special undersizes were finished to
final size by an hydraulically operated broaching machine.
The machine had a number of horizontal cutters, each
removing about .0005 of an inch as the tool was forced
through the babbitt bearing opening by hydraulic pressure.
[Pltf's Ex. 30.] All bearings then were given a final
inspection and the nuts holding the connecting rod caps

—13—

in place were loosened by a power operated socket wrench,
to enable the operator to ascertain whether or not the
threads of the bolts had been stripped. [Pltf's Ex. 32.]
New nuts and bolts were replaced where necessary.
[Pltf's Ex. 43.]

Each rod then was put in a cardboard carton and placed
in appellee's stock room. It had a stock room with stock
in it in connection with each of its six plants. [R. 104,
105, 242.] Appellee guaranteed its finished product
against defective workmanship and material. [R. 179.]
This is a characteristic guarantee in the industry. [R.
179.] Each carton containing a Moroloy connecting rod
had appellee's trade name and stock number at one end.
The number conformed to appellee's printed price sheets
and catalogs. [R. 144; Pltf's Exs. 44, 45, 47, 49.] The
label on the end of the carton also contained a picture
of a connecting rod and the words "Rebabbitted Connect-
ing Rods, Centrifugally Cast, Accurately Machined" and
"Moroloy bearing service".

When appellee found it necessary to obtain a so-called
"rebabbitted" rod from a local dealer, appellee had to pay
the same price as it would for a "new" one [R. 179] ;
that is, appellee paid its own retail list price (outright
price) which was just about the same for the complete
unit as the retail price of new rods taken out of stock
which had come from an automobile factory. [R. 251.]
If appellee found it necessary to obtain an entirely "new"
rod from a local dealer, it sold it to its customers on the
exchange basis for the same price as it would its own rods

—14—

which it had processed by combining used forgings with
new materials. [R. 104-105.]

The following occurred between appellee's chief wit-
ness, J. Leslie Morris, and the court [R. 106] :

The Court: The other ninety-five per cent [of ap-
pellee's monthly sales] would consist of taking the
used and damaged rod and processing it, as you
have described, and delivering that identical rod so
processed back to your customer?

The Witness: No, sir; not the identical rod; a rod
exactly like it.

The Court: That is what I am talking about.

The Witness: Yes. Not the identical rod, but a
rod exactly like it.

The witness further testified [R. 120] :

* * * it would be physically impossible for us
to tell who they came from, except we have the
others waiting in the stockroom to go out.

On the side margin of each page of the printed catalog
which appellee distributed to the trade (wholesale supply
houses) there was conspicuously displayed in large type
on a red background the trade name for its product
"Moroloy Connecting Rods". [Pltf's Ex. 49; R. 171.]
On the second and third pages of appellee's 1933 catalog
[Pltf's Ex. 49] the following statements, among others,
appear: "By our exclusive manufacturing practice, de-
veloped for 1933 conditions. . . . Jobbers Now Re-
duce Inventories 50% on These Numbers * * *

—15—

Moroloy Connecting Rods

Are Centrifugally Bonded and Automatically

Machined to Duplicate Original Equipment

Casting

Moroloy Centrifugally Processed Rods meet en-
gineering specifications of original car and motor
manufacturers.

This process deposits babbitt on the tinned surface
under extreme centrifugal pressure, assuring an ab-
solute bond between babbitt and steel, that is not ob-
tainable by the old fashioned hand poured method.

Centrifugally processed connecting rods are en-
dorsed by the Society of Automotive Engineers and
are used exclusively by the following manufacturers:
[naming 25 automobile manufacturers].

"If It's Not Centrifugally Cast— It's Not A
Factory Duplicate

Automatic Pyrometers

To regulate the temperature of rods, tin and bab-
bitt, the Moroloy Centrifugal Process eliminates
human element entirely. Heat control is obtained by
approved automatic pyrometers.

Machining and Finishing

Moroloy machining and finishing is accomplished
with the same engineering exactness, following closely
the recommendations and usages of leading original
manufacturers.

Modern high compression engines demand close
tolerances, both in bearing diameter and width. Of
equal importance is proper length spacing. Moroloy
precision tools are automatic in maintaining exact

—16—

length dimensions between center of piston pin and
center of crankshaft.

Moroloy processed rods are straightened, cleaned
and serviced with new bolts, nuts, shims and piston
pin bushings. Oil clearance allowed. No scraping nor
reaming required.

Electrical alignment is an exclusive Moroloy fea-
ture.

For Quick, Simple and Proper Installation,
Insist on Moroloy

The extra quality built into every rod means longer
life, trouble free operation and Owner Satisfac-
tion, the factors most important in building your
business.

Service

Fifteen manufacturing plants, located at strategic
points over the United States and Canada, render a
coast to coast service, convenient to every jobbing
center. Ample stocks at all branches assure same
day shipment. Telephone and telegraphic orders re-
ceive instant attention.

For the period June 21, 1932, to August 1, 1935, the
Commissioner of Internal Revenue assessed against ap-
pellee $6,800.59 as manufacturer's excise tax under Sec-
tion 606(c) of the Revenue Act of 1932, with respect to
sales to jobbers of Moroloy connecting rods. [R. 45.]
Appellee paid thereon to the Collector of Internal Revenue
only the total sum of $1,500 in three installments of $500
each, on September 1, 1937, April 22, 1938, and August
13, 1938, respectively. [R. 44, 49-50, 55.] The $5,300.59

—17—

balance of the assessment remained unpaid and appellant
set up a counterclaim therefor [R. 28-29] which the court
denied. [R. 62.] Appellee filed separate claims for the
refund of each of the three $500 payments [R. 45-49,
50-54, 55-58] on the grounds that it "is engaged in the
business of rebabbitting worn automobile connecting rods"
and that its "process is only a repair" [R. 46], and that
it is not a manufacturer. The claims were rejected by the
Commissioner of Internal Revenue [R. 49, 54, 58, 233-
234] and this suit was timely commenced.

Statement of Points to Be Urged.

The main point upon which appellant relies [R. 255]
is that the District Court erred in determining that the
sales of connecting rods by appellee, during the taxable
period involved herein, were not sales of automobile parts
or accessories by a manufacturer or producer thereof with-
in the purview of Section 606(c) of the Revenue Act of
1932. Included as part and parcel of the reasons for
the making of this error are the following more specific
points :

(a) The court erred in finding (Fdg. Ill) that all of
the connecting rods in respect of the sale of which the
tax in question was assessed were manufactured by per-
sons, firms, or corporations other than appellee and, be-
fore their acquisition by appellee, had been used as operat-
ing parts for automobile motors, for the reason that the
finding is clearly erroneous and unsupported by the evi-
dence.

—18—

(b) The court erred in finding (Fdg. IV) that none of
the articles sold by appellee, on which the tax in suit
was assessed and paid, were manufactured or produced
by appellee, and that appellee was engaged in the business
of repairing and rebabbitting worn and damaged auto-
mobile connecting rods, for the reason that this alleged
finding, if it is such is clearly erroneous and without sup-
port in the evidence. Although purporting to be a finding
of fact, appellant claims it constitutes a conclusion of law
or, at best, involves a mixed question of fact and law.

(c) The court erred in making a finding (Fdg. IV)
that appellee's process "did not change the identity of the
parts in any manner", for the reason that such finding, if
material, is clearly erroneous and without support in the
evidence.

(d) The court erred in failing to find that the sales
by appellee were of automobile parts or accessories.

Summary of Argument.

The transactions involved constituted sales of automo-
bile parts within the meaning of the statute, which is a
revenue measure exclusively and is to be construed ac-
cordingly. The automobile parts involved were fashioned
by combining new materials with salvaged materials and
subjecting them to machine and hand operations which
clearly constituted manufacturing and/or production pro-
cesses. The completed articles were stocked, cartoned,
labelled, numbered, catalogued and marketed by appellee
under its own copyrighted trade name "Moroloy" and were

—19—

sold chiefly to jobbers for resale to garage men and me-
chanics for use in repairing automobile motors for indi-
vidual car owners. From the standpoint of production
and distribution in the trade, appellee performed the func-
tion of a manufacturer or producer of automobile con-
necting rods in the true sense, and not the repairing of
used or worn connecting rods for owners or users.

The better reasoned and recent decisions, including the
decision of this Court in the Armature Exchange case,4
support the view that appellee is a manufacturer or pro-
ducer of automobile parts within the meaning of the tax-
ing statute. Likewise, under the applicable Treasury
Regulations which have been in effect for a long period of
time, during which the statute has been reenacted many
times without material change, appellee is taxable as the
producer or manufacturer of the articles it sold.

The judgment, ultimate findings and conclusions of the
court below are not supported by the evidence, are clearly
erroneous and should be reversed with a direction that
judgment be entered in favor of appellant for the balance
of the unpaid assessment, only $1,500 of which was paid
and forms the basis for this suit.

^United States v. Armature Exchange, 116 F. (2d) 969, certiorari denied
May 5, 1941.

—20—

ARGUMENT.

I.

The Transactions Involved Constituted Sales of Auto-
mobile Parts Within the Meaning of the Statute,
Which Is a Revenue Measure Exclusively, and Is
to Be Construed Accordingly.

By Section 606(c) of the Revenue Act of 1932 [Ap-
pendix, infra], an excise tax equivalent to 2% of the sales
price is imposed with respect to automobile parts or ac-
cessories on the manufacturer, producer, or importer
thereof. No imports are involved here.

Clearly, the Moroloy Connecting Rods involved are au-
tomobile parts or accessories. No argument seriously can
be advanced to the contrary. It is equally clear that the
Moroloy rods were sold by appellee and were not the
subject matter of contracts of repair for others. No con-
tention was made by appellee to the effect that the trans-
actions did not involve sales of connecting rods. The com-
plaint affirmatively alleges [R. 3] that the taxes sued for
were assessed and imposed in respect of sales by appellee,
and the court expressly found that the taxes were assessed
and imposed in respect of sales of connecting rods by ap-
pellee. [R. 39.] The court also found [R. 59] that the
tax involved was not included by appellee in the sale price
of the connecting rods.

Thus, under the pleadings, undisputed evidence, and
findings, there can be no doubt that the transactions which
were taxed constituted sales of automobile parts as dis-
tinguished from transactions involving repair jobs upon

—21—

articles belonging to others who retained the title thereto
and who received the return thereof after the furnishing
of materials and the performance of labor thereupon by
appellee.

No question was raised by appellee in its claims for
refund or pleadings concerning the propriety of whatever
price basis was used in the computation of the total tax
assessment of $6,800.59 of which only $1,500 was paid
on account. The evidence does not disclose whether the
outright price, consisting of part cash plus the amount of
allowance made for the used article taken in trade as part
payment, or merely the cash portion of the sales price
which appellee contends represented the cost of the alleged
"rebabbitting" or "repairing" was used in computing the
tax in dispute.

It follows that the inquiry resolves itself solely into the
question of whether appellee's sales of the Moroloy con-
necting rods for automobiles were taxable to it as the
manufacturer or producer thereof within the meaning of
the Act. The court reached its decision against the Gov-
ernment by pyramiding one erroneous view upon another;
first, it assumed and concluded that the characterization
"rebabbitting" was truly descriptive of the processes of
appellee; second, that the "rebabbitting" process by ap-
pellee constituted a process which was one of repair only
and, third, having reached the latter conclusion, it neces-
sarily followed (irrespective of appellee's position in the
trade from the standpoint of production and distribution)
that it could not be a manufacturer or producer. In

—22—

reaching its decision, the District Court obviously was
influenced by the fact that competitors of appellee engaged
in similar business had been held by some of the District
Courts, in similar fact situations, not to be manufacturers.
In this connection, the trial court, in its memorandum
opinion, stated [R. 34-35] :

For the sake of uniformity, if for no other reason,
taxpayers identically situated and doing precisely the
same thing in relation to tax laws should be treated
alike. Our inquiries and investigations have failed to
disclose that the government has taken appeal in the
cases referred to, and we are therefore justified in
assuming that refunds have been made to the respec-
tive taxpayers situated as is the plaintiff taxpayer in
this action.

We are not unmindful of the decision of the
Seventh Circuit Court of Appeals in Clazvson & Beds,
Inc., v. Harrison, Collector, 108 F. 2d 991, reaching
a contrary conclusion as to the meaning of the terms
"manufacturer" and "producer" as applied to re-
babbitting activities similar to those shown by the
record before us. * * *

Inasmuch as our Circuit Court of Appeals has not
considered or decided the question under consideration
in this action, we are justified in formulating and
reaching our own conclusions under the record before
us and in the light of other identical situations con-
sidered and determined uniformly by the federal
courts of the Ninth Circuit. (Italics supplied.)

We submit that the decision below is clearly erroneous.
However, it is apparent from the foregoing excerpts that
the District Court followed the decision in a similar type
of case in the Northern District of California chiefly for

—23—

the sake of uniformity in the absence of a decision by
this Court. It did not have the benefit of this Court's
opinion rendered eight months later in United States v.
Armature Exchange, 116 F. (2d) 969, certiorari denied
May 5, 1941. Had the Armature Exchange case been
decided by this Court prior to the decision below, it is
safe to assume that the District Court would have reached
a different conclusion, particularly in view of its expres-
sion that the record here presents "rebabbitting activities
similar" to those in the case of Clawson & Bals v. Harri-
son, 108 F. (2d) 991 (C. C. A. 7th), certiorari denied,
309 U. S. 685. The latter case was cited and followed by
this Court in the Armature Exchange case.

We make the same contention here as was made before
this Court in the Armature Exchange case, supra, and
in our brief in United States of America, Appellant v.
Moroloy Bearing Service of Oakland, Ltd., Appellee, No.
9786, this Court, and in Clazvson & Bals v. Harrison,
supra, involving sales of alleged "rebabbitted" connecting
rods, namely, that appellee was engaged in the manufac-
ture and/or production and sale of connecting rods and
not in the business of repairing used, discarded and worn-
out connecting rods; that it had factories, made connect-
ing rods, and sold them — it did not enter into contracts
for the performance of labor and supplying of material
with respect to articles owned by others who retained
ownership and sought merely to prolong the life thereof
by having the articles repaired for their own use; that
in connection with the production of its article, appellee
purchased used and worn-out connecting rods which had
been discarded and relegated to the junk heap, i. e., it
used in part scrap having a value essentially as raw
material; that it stripped and dismantled the used and dis-

—24—

carded connecting rods and salvaged and prepared the
usable shanks and caps for its manufacturing and pro-
duction processes; that by machine and hand operations,
cleaning, cutting, grinding, grooving, polishing, manipu-
lating, assembling, heating, chemically treating, adding
and combining with the prepared salvaged parts new ma-
terials and industry, it processed and fashioned such ma-
terials into articles of merchandise which it stocked and
marketed under its special copyrighted trade name
"Moroloy,?; that all of such articles were the equivalent
of connecting rods processed, fashioned and fabricated
entirely from materials which previously had not been
utilized in similar manufactured articles. In other words,
we contend that all of the essential elements of manufac-
ture and/or production exist for the purpose of the tax-
ing statute.

The statute is very broad and comprehensive and in-
dicates a Congressional intent to bring within its reach all
persons placing automobile parts and accessories on the
market for sale in the United States.

An example of the broad scope of the taxing provi-
sions, as intended by Congress, is furnished by Section
623 of the Revenue Act of 1932, which provides:

Sec. 623. Sales by Others Than Manufacturer,
Producer, or Importer.

In case any person acquires from the manufacturer,
producer, or importer of an article, by operation of
law or as a result of any transaction not taxable
under this title, the right to sell such article, the
sale of such article by such person shall be taxable
under this title as if made by the manufacturer,
producer, or importer, and such person shall be liable
for the tax. (Italics supplied.)

—25—

The applicable Treasury Regulations (Regulations 46)
broadly define the terms used in the Act. They provide
in part as follows:

Art. 4. Who is a manufacturer or producer. —
As used in the Act, the term "producer" includes a
person who produces a taxable article by processing,
manipulating, or changing the form of an article, or
produces a taxable article by combining or assembling
two or more articles.

Under certain circumstances, as where a person
manufactures or produces a taxable article for a per-
son who furnishes materials and retains title thereto,
the person for whom the taxable article is manufac-
tured or produced, and not the person who actually
manufactures or produces it, will be considered the
manufacturer. (Italics supplied.)

Art. 41. Definition of parts or accessories. —
The term "parts or accessories" for an automobile
truck or other automobile chassis or body, or motor-
cycle, includes (a) any article the primary use of
which is to improve, repair, replace, or serve as a
component part of such vehicle or article * * *.

Section 1111(b) of the Revenue Act of 1932 provides
that the term "includes", when used in a definition in the
Act, shall not be deemed to exclude other things otherwise
within the meaning of the term defined, and Article 2
of Treasury Regulations 46 provides that the "terms used
in these regulations have the meaning assigned to them by
section 1111".

Thus, it was obvious that Congress intended to impose
the tax upon the sale of each and every automobile part
or accessory produced and sold to wholesalers, jobbers
and distributors, as well as sales by the producer or manu-

—26—

facturer directly to the retailer or ultimate consumer.
However, the decision below, if allowed to stand, would
nullify such Congressional intent by permitting the pro-
duction of automobile parts from a combination of new
materials with salvaged parts of worn-out articles having
no other value than that of junk, and the sale thereof
in competition with similar automobile parts produced en-
tirely from new materials, without being subjected to tax
upon sale to the wholesale trade.

Our contention is consistent with the definition of a
manufacturer or producer as used in the Treasury Regu-
lations which have been in effect for a long period of
years, during which time the statute has several times
been reenacted without change, so far as here material.
Article 4, supra, of Treasury Regulations 46, provides
that a producer includes a person who "produces a taxa-
ble article by combining or assembling two or more ar-
ticles". Although this definition seemed amply clear, it
has been made even clearer by Section 316.4 of the 1940
Edition of Treasury Regulations 46 which were promul-
gated under Section 3450 of the Internal Revenue Code
with respect to excise tax provisions covering automobile
parts, tires, tubes, and other taxable articles. (See Sec-
tion 3400, et seq.. Internal Revenue Code.) Section 316.4,
supra, provides:

Who is a manufacturer. — The term "manufacturer"
includes a person who produces a taxable article from
scrap, salvage, or junk material, as well as from new
or raw material, (1) by processing, manipulating, or
changing the form of an article, or (2) by combining
or assembling two or more articles.

The decisions of this Court in the Armature Exchange
case, supra, and of the Seventh Circuit Court of Appeals

—27—

in the Claw son & Bals case, supra, are squarely in point
and accord with the views and reasoning hereinabove ex-
pressed.

It should be remembered that the excise tax is a rev-
enue measure exclusively. Thus, the facts must be con-
sidered in the light of such statutory object and purpose.

The tax is on each transaction at the rate of 2% of the
manufacturer's or producer's sale price of the article sold.
It is not imposed upon repair jobs5 involving mere con-
tracts for labor and material with respect to articles owned
and used by another. Yet, despite the undeniable fact
that appellee realized its business profit from the sale
of its product, the court below erroneously concluded [R.
39-40] that appellee was "engaged in the business of re-
pairing and rebabbitting worn and damaged automobile
connecting rods". An effective answer to this conclusion
or finding was furnished, we believe, by the Seventh
Circuit Court of Appeals in Clawson & Bals v. Harrison,
108 F. (2d) 991, 994, wherein it said:

The fact that the taxpayer could perform for the
owner of used connecting rods all of the mechanical
operations which it does perform under the facts of
this case, and still properly be classified as a repairer,
does not require a holding that the taxpayer is a re-
pairer when it purchases discarded rods to be used as
materials for combination with other materials of
the taxpayer, and by means of mechanical operations
prepares what are, for all practical purposes, new
connecting rods for sale in the trade.

5As a matter of administrative policy, the revenue officials eliminate
from their excise tax computations all repair job transactions, if any, which
may be found, or which the taxpayer may have overlooked.

—28—

Because of the hundreds of thousands of transactions
occurring daily throughout the country, which are subject
to the excise tax provisions, the method of ascertainment
of such taxes must be possible of accomplishment without
being fettered by technical refinements which tend to defeat
the purpose of the statute as a means of raising revenue.
The following quotation from Raybestos-Manhattan Co.
v. United States, 296 U. S. 60, 63, is apropos here:

The reach of a taxing act whose purpose is as obvi-
ous as the present is not to be restricted by technical
refinements.

See, also:

Founders General Co. v. Hoey, 300 U. S. 268, to
the same effect.

In Tyler v. United States, 281 U. S. 497, the Court
stated (p. 503):

The power of taxation is a fundamental and imperious
necessity of all government, not to be restricted by
mere legal fiction * * *.

Taxation, as it many times has been said, is emi-
nently practical * * *.

In the Tyler case the Court held that the Congressional
intent to tax decedent's interest at date of death in a
tenancy by the entireties could not be restricted by the
technical incidents of such common law tenancy. Like-
wise, the terms "manufacturer" or "producer", used in
the statute, should not be treated as words of art, but
rather construed so as to effectuate the evident broad intent

—29—

of Congress with respect to the taxation of automobile
parts. In Turner v. Quincy Market Cold Storage &
Warehouse Co., 225 Fed. 41, 43 (C. C. A. 1st), it was
held that the term manufacture "is a very broad word,
which it is not safe to limit in a general way". See
Hughes & Co. v. City of Lexington, 211 Ky. 596, 277
S. W. 981, 982, wherein the court, in holding that appel-
lant was engaged in manufacturing, stated:

That the definition of the term is a question of
law and for the courts is plain, but the courts are
practically agreed that it is incapable of exact defini-
tion, and that there is no hard and fast rule which
can be applied, but that each case must turn upon
its own facts, having regard for the sense in which
the term is vised and the purpose to be accomplished.
[Citing cases.] (Italics supplied.)

In Carbon Steel Co. v. Lewellyn, 251 U. S. 501, it was
held that the rule of strict construction will not be pressed
so far as to reduce the taxing statute to a practical
nullity by permitting easy evasion. The court stated (p.
505):

It is, of course, the contention of petitioner that this
was furnishing, not manufacturing, and that the
literal meaning of words can be insisted on in resist-
ance to a taxing statute. We recognize the rule of
construction but it cannot be carried to reduce the
statute to empty declarations. And, as we have al-
ready said, petitioner's contention would so reduce it.

—30—

It may be added that the proper guide for the interpreta-
tion and construction of Section 606(c) — as for all inter-
nal revenue laws — was furnished by the Supreme Court in
Stone v. White, 301 U. S. 532, 537:

It is in the public interest that no one should be per-
mitted to avoid his just share of the tax burden ex-
cept by positive command of law, which is lacking
here.

It follows from what has been said that the first ques-
tion for determination in a case of this kind is whether
there has been a sale of the articles under consideration,
for if there has been no sale the statute does not apply.
If the articles have been sold, the only remaining inquiry
is whether the seller was also the manufacturer, producer,
or importer thereof, within the meaning of the applicable
statute and regulations. In passing upon the latter ques-
tion, it should be borne in mind that the idea of one re-
pairing an article for another is opposed to the idea that
the repairer may be simultaneously the seller of the article
itself upon completion of his contract for the performance
of labor and supplying of materials. Yet, conversely, the
appellee contends in substance that although it was the
seller of the articles in question, it should be held to be
only the repairer thereof. There is no question but that
the "moroloy" Connecting Rods were sold by appellee
for use by ultimate vendees in repairing automobile en-
gines.

—31—

II.

Appellee Is the Manufacturer or Producer of the
Moroloy Connecting Rods Sold by it and Not
Merely a Repairer of Second-hand, Damaged and
Worn Out Connecting Rods.

Appellee was incorporated for the defined purpose of
operating a ''business for the manufacture, sale and dis-
tribution of automotive * * * products" and to "oper-
ate branch plants" therefor. [R. 37.] It actually engaged
in the business of selling automobile parts to automotive
jobbers throughout the United States and, through an
affiliate, in Canada. It operated six plants or factories,
had considerable machinery and equipment for its opera-
tions, produced an estimated amount of more than 240,-
000 connecting rods each year, maintained a stock for sale
of connecting rods for nearly all makes of automobiles,
and cartoned or boxed each article in a container marked
with appellee's own trade name and stock number. In
its printed trade catalogs, it unmistakably represented its
function and processes as those of a manufacturer.

The taxing statute does not discriminate between auto-
mobile parts produced entirely from new materials and
those produced by combining new materials with usable
materials salvaged from discarded articles, scrap or junk
purchased and dismantled for such purpose. Neither do
the definitions of the words manufacturer, producer, manu-
facture, or produce, require that a manufactured article
shall consist entirely of new or virgin raw materials. In
fact, it has been held that a manufactured article need

—32—

not be made wholly or even in part of raw material.
(The King v. Biltrite Tire Co., 1937 Canada Law Rep.
(Ex. C. R.) 1, 14.)

In the Armature Exchange case, supra, this Court
stated (p. 971):

We cannot find any justification for reading into
the statute involved here, as taxpayer would have us
do, the qualification that the articles "manufactured
or produced" must have been so manufactured or

produced entirely from new or virgin raw materials.
* * *

The Government contends, and we think correctly,
that the discarded armatures purchased by the tax-
payer, having lost their function as a useful article
as well as their commercial value as such, when ac-
quired for use in the manufacturing and production
of an article of commerce, bear the same relation
to the completed armature as the purchase of un-
used materials would bear to the completed article.
See Cadwalader v. Jessup & Moore Paper Co., 149
U. S. 350 * * *. The article resulting from the
use of the discarded core with new materials, and
through the employment of skill, labor and machinery,
is, as it seems to us, a manufactured and produced
article of commerce. Such an article produced in
quantities under a trade name and placed in stock
for future sale must be classified as a manufactured
or produced article. It is our opinion and we hold
that these operations constituted "manufacture or
production" within the meaning of the statute in-
volved. See opinion in Clawson & Bah, Inc. v. Har-
rison, 7 Cir., 108 Fed. (2d) 991.

—33—

The use of the term "rebabbitted" is without material
significance, for it appears to have been acquired in the
early days of the automotive industry and obviously was
borrowed from the garage man or mechanic who orig-
inally used to "rebabbitt" the connecting rods of an owner
who brought in his car for repairs. [R. 85.] Appellee's
function, and that of its competitors, has not only sup-
planted the former limited undertaking of the individual
mechanic but, by a process of industrial evolution, both
mechanically and economically, has become an integral
part of the automotive replacement parts manufacturing
industry, so much so that today all the mechanic need
do is purchase a new set of connecting rods at reasonable
cost from the nearest parts jobber and install them, in-
stead of attempting to repair the babbitt bearings of
his customer's connecting rods. [R. 85.]

Appellee obviously considered itself the producer of the
connecting rods it stocked and sold, otherwise it is not
likely that it would have adopted the trade name under
which it advertised and catalogued its product. The
rods were placed by appellee in marketable or merchant-
able form with the usual standard guarantee for such
articles.

The court below, as stated in its opinion, considered
that the socalled "rebabbitting" activities of appellee, as
shown by the record before us, were similar to those con-
sidered by the Seventh Circuit Court of Appeals in the
Clawson & Bals case, supra. Appellee's chief witness
testified [R. 196- 197 J that appellee handled its customers

—34—

in the same way as did most "rebabbitters", including
the Federal Mogul Corporation, which is one of the larg-
est in the United States.

In view of the information contained in the Federal
Mogul6 and Clawson & Bals findings and decisions, this
Court will take notice of the fact that the loosely used
trade characterization "rebabbitted" does not furnish an
accurate or complete description of the processes under-
taken by persons who sell articles of the disputed type
to wholesale automotive jobbers. Consequently, and in
view also of the evidence in this case, we submit that the
court below erroneously held [R. 39] that the connecting
rods (which were sold by appellee) were manufactured by
others. In view of the processes disclosed by the evi-
dence, it is not possible correctly to so find. The court
might have found that the caps and shanks and some of
the nuts and bolts used in appellee's processes originally
had been made by others but such a finding would not
detract from our contention herein.

Likewise, the court erred in finding that the used con-
necting rods sold by appellee formerly had been used
as operating parts for automobile motors. Appellee did
not sell formerly used connecting rods but sold a product
which it assembled from materials salvaged from formerly
used connecting rods and other materials. As disclosed
by the evidence here and by the finding in the Federal

^Federal Mogul Corp. v. Smith (S. D. Ind.), decided February 23, 1940,
not officially reported but published in 1940 Prentice-Hall, Vol. 4, par.
62,510.

—35—

Mogul and Clawson & Bals cases, supra, the babbitting
process is not the chief operation in the production of con-
necting rods. This is particularly true where the rods
are equipped with bronze bushings. In such cases the
bronze bearing and babbitt bearing, as stated, are equally
important and, in addition, there is the requirement of
shims and new nuts and bolts so that the only used
materials involved in such a rod may consist merely
of formerly used cap and shank.

Although appellee's witness Morris testified that the
same cap was put back on the same shank, it appears
from the Federal Mogul findings that it is not necessary
to do this in all cases. This is especially true in the
case of Ford rods. Thus, it frequently may occur that
upon completion of a rod it may contain a cap from one
formerly used rod, a shank from another used rod, and
the balance thereof entirely of new materials.

Appellee's own evidence refutes the idea that it merely
"rebabbitted" connecting rods for others. In its printed
catalog (Pltf's. Ex. 49), it represented that Moroloy
processed rods contained "new bolts, nuts, shims and pis-
ton pin bushings". Consequently, the Moroloy rods which
were sold by appellee were not rods originally manufac-
tured by others than appellee, or rods which previously
had been used as operating parts of automobile motors,
as found by the court. As stated, these findings clearly
are erroneous.

We believe that the foregoing discussion aptly demon-
strates that appellee did not sell what were in fact "re-

—36—

babbitted" connecting rods but sold to the trade connect-
ing rods which it fashioned, assembled and processed from
commingled scrap and new materials.

The evidence definitely established that appellee was the
producer of the connecting rods it sold because the es-
sential elements of manufacture or production were shown
to exist. It acquired worn-out connecting rods which it
dismantled and from which it salvaged the usable parts
and then, by machine and hand operations, together with
the addition of new materials, it assembled and fashioned
an automobile part which it marketed under its own trade
name in competition with similar products manufactured
by the Federal Mogul Corporation, Clawson & Bals,
Inc., automobile manufacturers and others. It made a
serviceable and salable product from scrap and raw mate-
rials. Whether appellee itself manufactured the shank
and cap used in producing Moroloy connecting rods would
appear to be immaterial. The essential fact is that appel-
lee combined the salvaged individually useless items with
new materials and, through the employment of skill, labor,
and machinery, produced a valuable item of commerce
which it sold to the trade. Thus, from the standpoint
of production and distribution in the trade, appellee per-
formed the function of a producer or manufacturer
rather than a repairer.

—37—

III.

The Applicable Decisions Support the Contention
That Appellee Is a Manufacturer or Producer of
Automobile Parts Within the Purview of the Tax-
ing Statute.

The Government's position that persons engaged in
selling automobile parts processed by them from a com-
bination of usable parts (salvaged and prepared from dis-
mantled formerly used parts) and new materials are pro-
ducers and/or manufacturers of automobile parts and ac-
cessories within the meaning of the taxing statute is sup-
ported by the following decisions:

United States v. Armature Exchange, decided by this
Court, involving automobile generator armatures pro-
cessed from a combination of new and used materials.
The taxpayer sold its armatures in boxes bearing the
legend "Annex Rebuilt Armatures". 116 F. (2d) 969,
970, certiorari denied May 5, 1941.

Clawson & Bals v. Harrison, 108 F. (2d) 991 (C. C.
A. 7th), certiorari denied, 309 U. S. 685, involving al-
leged "rebabbitted" connecting rods made by taxpayer
from a combination of used caps, shanks, nuts and bolts
and new materials.

Edelman & Co. v. Harrison (N. D. 111.), decided April
7, 1939, not officially reported but published in 1939 Pren-
tice-Hall, Vol. 1, par. 5.379, involving so-called "re-
wound" armatures and "rebuilt" generators for automo-
biles made by taxpayer from a combination of new and
used materials.

—38—

Federal-Mogul Corp. v. Smith (S. D. Ind.), decided
February 23, 1940, not officially reported but published
in 1940 Prentice-Hall, Vol. 4, par. 62,510, involving auto-
mobile connecting rods made by taxpayer from a com-
bination of new and used materials in a manner similar
to that involved in the Clawson & Bals case, supra, and
the instant case.

Moore Bros., Inc. v. United States (N. D. Tex.), de-
cided May 14, 1940, not officially reported but published
in 1940 Prentice-Hall, Vol. 4, par. 62,676, involving so-
called "rebuilt" automobile armatures.

The case of Motor Mart v. United States (N. D. Tex.),
(involving generators and armatures) was decided for
the Government on May 14, 1940, without opinion (Civil
Action #239).

Biltrite Tire Co. v. The King, 1937 Canada Law Rep.
364, arising under the Canadian War Revenue Act of
1927, involving language similar to that used in Section
606(c) of the United States Revenue Act of 1932, and
involving so-called "retreaded" automobile tires.

The King v. Biltrite Tire Co., 1937 Canada Law Rep.
1, being the immediately preceding case in the Exchequer
Court of Canada, at first instance and in the exercise of
its appellate jurisdiction.

The King v. Boidtbee, Ltd. [1938], 3 Dominion Law
Rep. 664, involving so-called "retreaded" automobile tires
made by taxpayer on a small scale. Taxpayer also did
considerable retreading of tires for customers to whom
the tires were returned. The latter transactions were
not sought to be taxed because they did not involve a
sale of the completed article but merely a contract for the
furnishing of materials and labor.

—39—

In Foss-Hughcs Co. v. Lederer (E. D. Pa.), 287 Fed.
150, an assembler of truck parts was held to be taxable
as a producer of trucks within the meaning of the excise
tax law of October 3, 1917. The law provided for a tax
on automobile trucks sold by the manufacturer, producer,
or importer. The taxpayer was a dealer who neither
imported nor manufactured but purchased the chassis from
the manufacturer and then employed a contractor to add
the body. He was held liable as a producer of trucks
in these circumstances. In this case, the court, appar-
ently recognized that the term "producer" is broader than
the term "manufacturer".

In Klepper v. Carter, 286 Fed. 370, 371, this Court cited
and relied upon the Foss-Hnghes case, supra. In the
Klepper case this Court held a retail salesman liable under
the 1919 version of the 1932 excise tax law as a manu-
facturer or producer of automobile trucks. The salesman
merely purchased automobile truck bodies from one manu-
facturer and chasses from another, and assembled the two
parts. The Court directed attention to the fact that Ar-
ticle 7 of the December, 1920, revision of the Regulations
defined the word "manufacturer" as generally a person
who (1) actually makes a taxable article; or (2) by
changes in the form of an article produces a taxable ar-
ticle; or (3) by the combination of two or more articles
produces a taxable article. This Court said that the re-
tail salesman, Klepper, saved the purchaser all the trouble
of assembling the chassis and body, and made it his
business to retail the product of his purchases as an auto-
mobile truck that he thus produced or manufactured the
truck.

In Cadwalader v. Jessup & Moore Paper Co., 149 U. S.
350, the recovery of customs duties was sought on the

—40—

ground that old india-rubber shoes imported by Jessup and
Moore were valuable only as a substitute for crude rub-
ber and, therefore, were exempt from duty under the free
classification "India-rubber, crude and milk of". A duty
of twenty-five per cent ad valorem had been collected on
the old shoes as (p. 351) "articles composed of india-
rubber, not specially enumerated or provided for in this
act". Another section of the act provided for a duty
on non-enumerated articles equal to that imposed upon
the enumerated articles they most nearly resembled, and
where they resembled two or more enumerated articles,
that taking the highest duty was to be used as the basis.
The Supreme Court, in holding the articles to be non-
dutiable, held that the old shoes had lost their commer-
cial value as such articles, and substantially were merely
the material called "crude rubber". Thus, the principle
of the Cadwalader case supports the contention that a
taxpayer engaged in the production of automobile parts
in the manner herein disclosed is a manufacturer and
producer since, because of the loss of their commercial
value, the used connecting rods are essentially raw ma-
terial.

Although we contend that the patent infringement de-
cisions and some of the tariff cases are not in point, the
two following cases are of interest:

In Cotton Tie Co. v. Simmons, 106 U. S. 89, the
Court held that one who bought used cotton-bale ties,
consisting of a metal buckle and a band, which were
patented, and who rolled and straightened the pieces of the
ties, riveted the ends together, and cut them into proper
lengths and sold them with the buckles to be used again
as ties, had "reconstructed" and not merely "repaired"
the bale-ties in the patent law sense and was guilty of

-41—

infringement even though no new material parts were
added.

In Davis Electrical Works v. Edison Elec. Light Co.,
60 Fed. 276 (CCA. 1st), the court held that the making
of a hole in the bulb of an Edison incandescent lamp,
in which the filament has been destroyed by use, and the
putting in of a new filament and closing the hole by
fusing a piece of glass over it and then exhausting the
air, constituted "reconstruction" and not merely repairing
as matter of patent law.

There can be no dispute but that when appellee ac-
quired the used and worn-out automobile parts, they were
classifiable as scrap and junk. The following definitions
and authorities concerning scrap and junk seem clearly
applicable :

56 Corpus Juris., 884-885, states:

Scrap. (Sec. 1)A. As Noun. The word origin-
ally meant what was scraped off. It has come to
have an extended meaning and includes anything
that is thrown aside. The word has reference to
the antecedent history of the article and not to the
use that a new owner might make of it.

jj£*#:j£3|cs|ej|c>|<*

(Sec. 2)B. As Adjective. On the form of scraps;
also valuable only as raw material.

In Ward, Ltd. v. Midland R. Co., 33 T. L. R. 4, 6
(Eng.), "scrap" was defined as follows:

An article was scrap if it was no longer useful to its
owner; the word had reference to the antecedent his-
tory of the article and not to the use that a new
owner might make of it.

—42—

The word "junk" has been held to include discarded
parts of machinery. City of Duhtth v. Bloom, 55 Minn.
97, 100, 21 L. R. A. 689, 690. Discarded automobile
fixtures were held to be within the definition of "junk"
in Melnick v. City of Atlanta, 147 Ga. 525, 94 S. E.
1015. In City of Chicago v. Reins chreiber, 121 111. App.
114, 120, the court defined the word "junk" as (pp. 118-
119) —

worn out or discarded material in general, that still
may be turned to some use, especially old rope, chain,
iron, copper, parts of machinery, bottles, etc., gathered
or bought up by persons called "junk dealers" * * *.

In the instant case, the used parts were nothing more
than "junk" when received by appellee. The principal
purpose of its business was to produce and sell automo-
bile connecting rods for numerous makes of automobiles
from a combination of new or prepared raw materials
and essentially raw material which appellee prepared. The
acquisition of second-hand material was merely incidental
to its production and/or manufacturing business.

In City of Louisville v. Zinmeister & Sons, 188 Ky.
570, 222 S. W. 958, the court stated (pp. 575-576) :

Courts here experienced much difficulty in determin-
ing what is a manufacturing establishment and what
is included in the term "manufacture." There is
no hard and fast rule by which to determine whether
a given establishment is a "manufactory," but all the
facts and circumstances must be taken into consider-
ation in determining whether the establishment is or
is not to be so reckoned. Whether it is such an estab-
lishment does not depend upon the size of the plant,
the number of men employed, the nature of the busi-
ness or the article to be manufactured, but upon all
these together and upon the result accomplished.

—43—

If raw material is converted at a factory or plant
into a finished product, complete and ready for the
final use for which it is intended, or so completed
as that in the ordinary course of business of the
concern it is ready to be put upon the open market
for sale to any person wishing to buy it, the plant
which turns it out is a manufacturing establishment
within the meaning of the statute * * *. (Italics
supplied.)

Likewise, in the instant case it is important to consider
all the surrounding facts and circumstances and not limit
consideration of the question involved to any single
factor, or to the narrow confines of an antiquated literal
interpretation of the word "manufacture" as understood
prior to the advent of modern machinery and industrial
methods of salvaging for manufacturing purposes.

If the terms "manufacturer" and "producer" are to be
whittled away by fine distinctions, the intent and purpose
of Congress to impose a tax upon automobile parts pro-
duced and sold to jobbers and wholesalers will neces-
sarily be defeated. In re First Nat. Bank, 152 Fed. 64,
67 (C. G. A. 8th).

If appellee had imported used connecting rods and done
nothing whatsoever to them and then had sold them, it
would have incurred an excise tax under the statute in
question as an "importer".

In addition to the foregoing decisions, it may be noted
that the taxpayers in the following cases voluntarily dis-
missed their refund actions after the action of the Seventh
Circuit Court of Appeals in the Clazvson & Bals case,
supra :

—44—

S. & R. Grinding & Machine Co. v. United States
(W. D. Pa.) (involving connecting rods), voluntarily
dismissed on plaintiff's motion, despite the fact it earlier
had obtained a favorable ruling on the Government's mo-
tion to dismiss. The ruling on the motion to dismiss is
reported in 27 F. Supp. 429.

Federal-Mogul Corp. v. Kavanagh (E. D. Mich.) (in-
volving connecting rods), voluntarily dismissed by tax-
payer as the parties were about to proceed to trial.

The foregoing Canadian decisions7 are particularly ap-
plicable because they involved a consideration of conten-
tions similar to those advanced herein by appellee, under
a revenue statute containing similar provisions. The tax-
payer there contended that the old tires had not lost their
identities as such during the "retreading" operations, that
the names and numbers of the original manufacturers
were not marred or obliterated, and that the taxpayer
was merely the repairer of second-hand tires and not
the manufacturer or producer thereof. However, each
of the contentions was rejected by the Supreme Court of
Canada and the Exchequer Court on reasoning similar
to that followed by the American decisions upon which
we rely.

It cannot be disputed that the used rods had lost their
commercial value as connecting rods and, after the dis-
mantling thereof, the salvaging of the usable forgings

iBiltrite Tire Co. v. The King, 1937 Canada Law Rep. 364
The King v. Biltrite Tire Co., 1937 Canada Law Rep. 1.

—45—

therefrom and the preparation of the forgings for tax-
payer's operations, there remained prepared materials for
manufacturing processes. Such prepared materials were
not then connecting rods but mere forgings on which ap-
pellee thereafter performed grinding operations, machin-
ing operations, added other materials, assembled the same
and employed skill before completing its marketable prod-
uct and placing it in stock for sale to wholesalers. The
position of appellee is the same as if it had purchased
forgings salvaged (from old or worn-out articles) and
prepared by the vendor for babbitting, bushing, machin-
ing, assembling and finishing operations. If then appel-
lee had purchased from a third party the remaining nec-
essary materials, consisting of babbitt, shims, nuts, bolts
and bushings, and continued with all subsequent steps, it
could hardly be suggested that the article in its final
condition had not been produced or manufactured by
appellee. And the mere fact that appellee has itself
performed the defined operations on the old forgings
cannot exclude it from the operation of the taxing statute.

It is suggested that the old or worn-out rod did not
lose its identity qua rod and that, therefore, the appellee
could not be said to have manufactured or produced a
rod. However, when one bears in mind the various
steps taken by appellee and particularly the state of
the article when the babbitt bearing, bronze bearing, bolts,
nuts and shims were removed, it would appear that appel-
lee cannot be any less the manufacturer of a connecting
rod because it started with something that had once been

a usable rod than if, as suggested above, it had commenced
with several substances purchased from different sources.

The following decisions, all of which are of District
Courts, are against the Government. However, most of
them have been, in effect, overruled by the later decisions
of the Seventh Circuit Court of Appeals and of this
Court, as hereinafter indicated:

Monteith Brothers Co. v. United States (N. D. Ind.),
decided October, 1936, not officially reported but published
in 1936 Prentice-Hall, Vol. 1, par. 1710 (involving arma-
tures and connecting rods), overruled by the Seventh
Circuit Court of Appeals in the Clawson & Bals case,
supra.

Hempy-Cooper Mfg. Co. v. United States (W. D. Mo.),
decided May 6, 1937, not officially reported but published
in 1937 Prentice-Hall, Vol. 1, par. 1461 (involving con-
necting rods).

Bardet v. United States (N. D. Cal.), decided May 18,
1938, not officially reported but published in 1938 Pren-
tice-Hall, Vol. 1, par. 5507 (involving connecting rods).
This case was overruled by the decision of this Court
in the Armature Exchange case, supra.

Becker-Florence Co. v. United States (W. D. Mo.),
decided December 27, 1938, not officially reported but pub-
lished in 1939 Prentice-Hall, Vol. 1, par. 5161 (involving
armatures).

Con-Rod Exchange, Inc. v. Henricksen, 28 F. Supp.
924 (W. D. Wash.) (involving connecting rods). This

case was overruled by the decision of this Court in the
Armature Exchange case, supra.

.Armature Rewinding Co. v. United States (E. D. Mo.),
decided September 30, 1940, not officially reported but
published in 1940 Prentice-Hall, Vol. 4, par. 62,887 (in-
volving generators and armatures). This case is now
pending on the Government's appeal before the Eighth
Circuit Court of Appeals.

The Con-Rod case, supra, was not appealed because
both it and the Armature Exchange case, supra, were
decided at about the same time by Judge Yankwich and
it was deemed by the Solicitor General that the appeal
in the Armature Exchange case would suffice, especially
when a successful appeal in the Con-Rod case would have
resulted in a judgment for considerably less than the
cost of appeal. The remaining cases which were not
appealed did not present satisfactory records. However,
we contend that the several adverse District Court deci-
sions were erroneous.

The case of Hartranft v. Wiegman, 121 U. S. 609,
relied on by the court below in its opinion, is not in
point. It, and other Supreme Court decisions usually
urged by taxpayers in these cases, were rejected in the
Armature Exchange case as being inapplicable.

—48—

IV.

The Government's Position Is Also Supported by the
Treasury Regulations Which in the Light of the
History and Reenactment of the Taxing Provi-
sions Without Material Change Have Been Given
Congressional Approval.

The Government's position is consistent with Treasury

Regulations 46, 1932 Edition:

Art. 4. Who is a manufacturer or producer. —
As used in the Act, the term "producer" includes a
person who produces a taxable article by processing,
manipulating, or changing the form of an article, or
produces a taxable article by combining or assembling
two or more articles. (Italics supplied.)

Section 316.4 of Treasury Regulations 46, 1940 Edition,
is to the same effect as Article 4, supra, except that the
later Regulations are even more specific, namely:

Sec. 316.4. Who is a manufacturer. — the term
"manufacturer" includes a person who produces a
taxable article from scrap, salvage, or junk material,
as well as from new or raw material (1) by process-
ing, manipulating, or changing the form of an ar-
ticle, or (2) by combining or assembling two or more
articles. (Italics supplied.)

Article 7 of the applicable Treasury Regulations, as
revised in December, 1920, defines a manufacturer as
generally a person who —

(1) actually makes a taxable article; or (2) by
changes in the form of an article produces a taxable
article; or (3) by the combination of two or more
articles produces a taxable article. ( Italics supplied. )

—49—

The italicized part of the 1920 revision of the Regulations
was carried forward in Regulations 47, revised March,
1926, as Article 6 thereof, also in the 1921 and 1924
Regulations under the 1921 and 1924 Revenue Acts.

The same definition of manufacturer was also carried
forward in Regulations 46, under the Revenue Act of
1932, as Article 4 thereof as shown above.

The following is a history of the enactment and re-
enactment of the excise tax law with respect to automo-
bile parts and accessories :

The Revenue Act of 1918, c. 18, 40 Stat. 1057, Sec-
tion 900(3), was the first to impose a tax on automobile
parts and accessories as distinguished from automobiles
themselves which were first taxed under the 1917 Act.
The rate, under the 1918 Act, on such parts and acces-
sories was 5%. The tax was reenacted by Section 900(3)
of the Revenue Act of 1921, c. 136, 42 Stat. 227, and the
rate was the same, effective as of January 1, 1922.

Under Section 600(3) of the Revenue Act of 1924, c.
234, 43 Stat. 253, the tax was carried forward and the
rate was reduced to 2y2%.

The Revenue Act of 1926, c. 27, 44 Stat. 9, Section
600, taxed "automobile chasses and bodies and motor-
cycles (including tires, inner tubes, parts, and accessories
therefor, sold on or in connection therewith or with the
sale thereof" at 3%. Therefore, under the 1926 Act,
parts and accessories sold separately were not taxed.

The Revenue Act of 1928, c. 852, 45 Stat. 791, Section
421, repealed, as of the date of its enactment, May 29,
1928, the taxes on automobiles.

—50—

By Section 606 of the Revenue Act of 1932, the tax
again was placed on automobiles, parts and accessories,
among other things.

The 1932 Act remained in effect during the passage of
all subsequent Revenue Acts and was reenacted in the
subsequent Acts or extended by resolution, and was re-
enacted in the Internal Revenue Code as Section 3403.

Section 3403 was amended by Section 1 of the Revenue
Act of 1939, c. 247, S3 Stat. 862, and Sections 209 and
216 of the Revenue Act of 1940, c. 419, 54 Stat. 516, but
was not changed so far as here material.

Section 210 of the 1940 Act amends the Internal Rev-
enue Code by adding a new section thereto, the effect
of which is to change the rate on automobile parts
and accessories from 2% to 2]/2% for the period after
June 30, 1940, and before July 1, 1945.

If, in addition to Article 4 of Treasury Regulations
46, approved June 18, 1932, providing that as used in
the Act the term "producer" includes a person who pro-
duces a taxable article by combining or assembling two
or more articles, more were needed, attention is directed
to the fact that this provision has appeared in the Treas-
ury Regulations since 1920, during which time the taxing
statute has been reenacted several times without material
change. Under the established rule Congress must be
taken to have approved the administrative construction
and thereby to have given it the force of law. H elver ing
v. Reynolds Tobacco Co., 306 U. S. 110, 115; United
States v. Armature Exchange, supra.

—51—

See, also, S. T. 896, 1940-2 Cum. Bull. 252, published
February 19, 1940, to the effect that persons who manu-
facture or produce connecting rods from used or worn-
out connecting rods and new material are manufacturers
and producers within the meaning of Section 606 of the
Revenue Act of 1932, and are subject to tax thereunder
upon the sales of such rods.

By S. T. 896, the following earlier rulings were modi-
fied to accord with the principles laid down in the Claw-
son & Bals decision:

S. T. 606, XI-2 Cum. Bull. 476 (1932), relating to
rebuilt taxi meters.

S. T. 648, XII-1 Cum. Bull. 384 (1933), and S. T.
812, XIV-1 Cum. Bull. 406 (1935), relating to retreaded
and rebuilt tires.

Thus, under any view of the case, the evidence brings
appellee squarely within the definition of a manufac-
turer or producer as set forth in the Regulations for
the past twenty years, namely, that "a person who * * *
produces a taxable article by combining or assembling two
or more articles" is included in the term "producer" as
used in the Act.

In conclusion, it is submitted that under the applica-
ble statute, decisions, Regulations, and undisputed evidence
the court below should have made ultimate findings of
fact and entered judgment in favor of appellant for the
amount of its counterclaim, and dismissing appellee's
complaint.

—52—
Conclusion.

It is submitted that the law and undisputed evidence do
not support the ultimate findings, conclusions, and judg-
ment below. The judgment should be reversed.

Respectfully submitted,

Samuel O. Clark, Jr.,
Assistant Attorney General.

J. Louis Monarch,
George H. Zeutzius,
Special Assistants to the Attorney General.

Wm. Fleet Palmer,
United States Attorney.

E. H. Mitchell,

Assistant United States Attorney ,

Armond Monroe Jewell,

Assistant United States Attorney.

September 26th. 1941.

APPENDIX.

Revenue Act of 1932, c. 209, 47 Stat. 169:

Sec. 606. Tax on Automobiles, Etc.

There is hereby imposed upon the following articles sold
by the manufacturer, producer, or importer, a tax equiva-
lent to the following percentages of the price for which
so sold:

(c) Parts or accessories (other than tires and inner
tubes) for any of the articles enumerated in subsection
(a) or (b), 2 per centum. * * *

[Note: Subsections (a) and (b) refer to automo-
biles, automobile trucks and motorcycles.]

Treasury Regulations 46, approved June 18, 1932:

Art. 4. Who is a manufacturer or producer. — As
used in the Act, the term "producer" includes a person
who produces a taxable article by processing, manipu-
lating, or changing the form of an article, or produces
a taxable article by combining or assembling two or
more articles.

Under certain circumstances, as where a person manu-
factures or produces a taxable article for a person
who furnished materials and retains title thereto, the
person for whom the taxable article is manufactured or
produced, and not the person who actually manufactures
or produces it, will be considered the manufacturer.

A manufacturer who sells a taxable article in a knock-
down condition, but complete as to all component parts,
shall be liable for the tax under Title IV and not the
person who buys and assembles a taxable article from
such component parts.

— 2—

Art. 41. Definition of parts or accessories. — The term
"parts or accessories" for an automobile truck or other
automobile chassis or body, or motorcycle, includes (a)
any article the primary use of which is to improve, repair,
replace, or serve as a component part of such vehicle or
article, (b) any article designed to be attached to or used
in connection with such vehicle or article to add to its
utility or ornamentation, or (c) any article the primary
use of which is in connection with such vehicle or article
whether or not essential to its operation or use.

The term "parts and accessories" shall be understood to
embrace all such parts and accessories as have reached
such a stage of manufacture that they constitute articles
commonly or commercially known as parts and accessories
regardless of the fact that fitting operations may be re-
quired in connection with installation. The term shall
not be understood to embrace raw materials used in the
manufacture of such articles.

Spark plugs, storage batteries, leaf springs, coils, timers,
and tire chains, which are suitable for use on or in con-
nection with, or as component parts of, automobile truck
or other automobile chassis or motorcycles, are considered
parts or accessories for such articles whether or not pri-
marily designed or adopted for such use.

No. 9746

z

IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

United States of America,

Appellant,

vs.
J. Leslie Morris Company, Inc., a corporation,

Appellee.

BRIEF FOR THE APPELLEE.

Darius F. Johnson,
1124 Van Nuys Building, Los Angeles,

Meserve, Mumper & Hughes,
615 Richfield Building, Los Angeles,
Attorneys for Appellee.

FILED

OCT 2 5 1941

Parker & Baird Company, Law Printers, Los Angeles. - Kj BRItlNg

•Lsmc

TOPICAL INDEX.

PAGE

Opinion Below 1

Jurisdiction 1

Question Presented 1

Statutes, Regulations and Rulings.... 1

Statement 2

Argument 4

I.

The rebabbitting of used second-hand connecting rods is not
the manufacture or production of connecting rods, but is
only the repair, restoration or reconditioning thereof 4

(a) Manufacturing or production consists of the applica-
tion of labor or skill by hand or machinery so that as
a result thereof a new, different and useful article of
commerce is produced 4

(b) The mere repair, restoration or reconditioning of an
article does not constitute manufacturing or production 13

II.

Taxing statutes must be strictly construed and should be so
construed as to produce uniformity and equality in their
application. Their provisions cannot be extended by im-
plication 26

Conclusion 31

Appendix :

Revenue Act of 1932, c. 209, 47 Stat. 169, Sec. 606 App. p. 1

Treasury Regulations 46, approved June 18, 1932, Art 4

App. p. 1

TABLE OF AUTHORITIES CITED.

Cases. page

Alaska Consolidated Canneries v. Territory of Alaska, 16 Fed.

(2d) 256 29

Bankers Trust Co. v. Bowers, 295 Fed. 89 29

Cadwalader v. Jessup & Moore, 149 U. S. 350 22

City of Louisville v. Zinmeister (Ky.), 222 S. W. 958 27

Clawson & Bals v. Harrison, 108 Fed. (2d) 991 23

Erskine v. United States, 84 Fed. (2d) 690 29

Foglesong Machine Co. v. Randall Co., 239 Fed. 893 19

Goodyear Shoe Machinery Co. v. Jackson, 112 Fed. 146 19, 20

Hartranft v. Wiegmann, 121 U. S. 609 8, 28

Hess-Bright Mfg. Co. v. Bearing Co., 271 Fed. 350.... 16

Hughes v. City of Lexington, 277 S. W. 981 12

Klepper v. Carter, 286 Fed. 370 7

Koshland v. Helvering, 298 U. S. 441 31

Manhattan General Equipment Co. v. Commissioner, 297 U. S.

129 31

Miller v. Standard Nut Margarine Co., 284 U. S. 498 28

Miller Hatcheries v. Incubator Co., 41 Fed. (2d) 619 20

Spreckels Sugar Refining Co. v. McClain, 113 Fed. 244 29

State v. J. J. Newman Lumber Co. (Miss.), 59 So. 923 20

The King v. Biltrite Tire Co., 1937 Canadian Law Rep. 1 25

The King v. Boultbee, Ltd. (1938), 3 Dominion Law Rep. 664.. 25

Thurman, Collector, v. Swisshelm, 36 Fed. (2d) 350 7

Wilson v. Simpson, 9 How. 109 14

Statutes.
Revenue Act of 1932, Sec. 606(c) 1

Textbooks.
Commerce Clearing House, 1939 Standard Federal Tax Service,
Vol. 4, para. 9219 23

No. 9746
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

United States of America,

Appellant,
vs.

J. Leslie Morris Company, Inc., a corporation,

Appellee.

BRIEF FOR THE APPELLEE.

Opinion Below.

The memorandum opinion of the District Court [R.
32-36] is unreported.

Jurisdiction.

The statement as to the jurisdiction of this Court con-
tained in appellant's opening brief is accepted by appellee.

Question Presented.

Whether sales of rebabbitted connection rods by appel-
lee were taxable under section 606(c) of the Revenue Act
of 1932, which imposed a tax upon automobile parts "sold
by the manufacturer, producer, or importer" thereof.

Statutes, Regulations and Rulings.

The applicable statutes, regulations and rulings involved
will be found in the appendix to this brief.

— 2—

Statement.

The case was tried to the court without a jury upon
evidence consisting of two witnesses offered by appellee
and numerous exhibits offered by each of the parties. The
court rendered a memorandum opinion [R. 32-36] and
findings of fact and conclusions of law [R. 36-60] in
favor of appellee.

The practice of rebabbitting worn or damaged automo-
bile connecting rods has existed for many years prior to
the inactment of the Revenue Act of 1932. Originally
the individual repair shops performed this operation, in
fact this is true in certain instances today. However,
because of the volume of business and the expense involved
it has become the practice for this work to be performed
by repair shops specializing in this work.

A connecting rod is the mechanical means by which the
piston is connected to the crankshaft. It transmits the
energy created by the explosion of gasoline vapor in the
cylinder to the crankshaft. [R. 89.] In order to mini-
mize the wear created by the friction there must be bear-
ings provided at each end of the rods. At the large or
lower end of the connecting rods there are thin layers of
babbitt metal which separate the rod from the crankshaft
journal which absorbs the wear. [R. 109.] The rods
are divided at the center of the large end to permit in-
stallation on the crankshaft journal. The lower part or
cap, being fastened to the upper part or shank, with two
bolts and nuts. [R. 108.]

During the period herein involved the appellee owned
plants in New York, Columbus, Chicago, Los Angeles,
Portland and Seattle. [R. 163.] The Los Angeles and
Chicago plants were the largest. [R. 164-165.] It is

— 3—

the practice of automobile repair men to send worn or
damaged rods to jobbers in exchange for rebabbitted rods
of the same type. The jobbers in turn send these rods to
appellee or others in the same business to have them re-
babbitted or exchanged for rods of the same type which
have previously been rebabbitted. [R. 102-103.]

In order to prevent delay which would result if each
customer's rods were rebabbitted and returned, appellee
has acquired a stock of used rods which have been rebab-
bitted and placed on the shelf for immediate exchange for
worn or damaged rods of the same type. [R. 166.]

Ninety-five per cent of the rods sold by appellee were
used rods sent in by jobbers in exchange for rebabbitted
rods or to be rebabbitted and returned. The remaining
five per cent were received from dealers in used rods or
were purchased from automotive representatives. [R.
120.]

In order to economically handle the large volume of
business which appellee enjoyed it was necessary to main-
tain shops utilizing considerable machinery. Appellant de-
votes much space in the opening statement in it's brief
to the discussion of the number of employees, the ma-
chinery used and the process through which the rods
passed. Appellee contends that the number of employees,
amount of machinery and process has no bearing on the
taxability of the parts sold. That the test of taxability
is whether this appellee was or was not a manufacturer
or producer within the meaning of section 606(c) of
the Revenue Act of 1932.

ARGUMENT.

I.
The Rebabbitting of Used Second Hand Connecting
Rods Is Not the Manufacture or Production of
Connecting Rods, But Is Only the Repair,
Restoration or Reconditioning Thereof.

(a) Manufacturing or Production Consists of the
Application of Labor or Skill by Hand or
Machinery So That as a Result Thereof a
New, Different and Useful Article of Com-
merce Is Produced.

In this case appellee seeks a refund of manufacturer's
excise taxes paid by it upon the sale of used, second hand
automobile connecting rods which it had rebabbitted. All
of the connecting rods sold by appellee were parts of auto-
mobile engines and over ninety-five (95%) per cent of
them had been used and as a result of such use had be-
come worn or damaged. The evidence by the testimony
of J. Leslie Morris which was uncontradicted is that the
connecting rods sent to appellee's plant for rebabbitting
could continue to operate in an internal combustion en-
gine. [R. 123.] It was further testified by Mr. Morris
that the rebabbitting was the building up of the bearing
so that it would operate more efficiently. [R. 123.] In
fact the witness stated [R. 123] :

"Preserve the oil pressure, and things of that sort.
It will function. In fact, I suppose 95 per cent of
the automobiles that pass this building right now, the
bearings are too loose, but they are still running just
the same."

— 5—

The appellee herein merely repaired used connecting rods
which had been worn or damaged through use as com-
ponent parts of automobile engines. The Court made a
finding of fact to the effect that appellee had not manu-
factured any connecting rods. In paragraph III of the
findings of fact the Court found in part [R. 39] :

". . . All of said connecting rods were manu-
factured by persons, firms or corporations other than
plaintiff and before their acquisition by plaintiff had
been used as operating parts for automobile motors,
and by reason of such use the babbitt metal lining
constituting a part of said connecting rods had be-
come worn, chipped, roughened and otherwise im-
paired; . . ."

Unrefuted testimony was to the effect that appellee never
manufactured any new rods and did not have the equip-
ment to manufacture them. [R. 98.] The same evidence
also established that appellee never removed the manu-
facturer's identification marks from any rods rebabbitted
by it or put on any identification marks of its own. [R.
99.] The method of acquisition and repairing of the
connecting rods was fully set forth in the record. (Plain-
tiff's Exhibits 1 to 32.)

If appellee's rebabbitting process commenced with a
connecting rod and ended with a connecting rod, it is
obvious that nothing has been manufactured or produced.
No new article of commerce has been produced by the
process, no new thing has been brought into existence.
When the rebabbitter commenced his work he had a con-
necting rod and when his work was completed he still had
the same connecting rod. It makes no difference how
long it took him to do the work, or how many different

pieces of machinery he employed in the process, or whether
he worked alone in a small shop, or whether he employed
many other workmen in a large plant, or whether after
the process was completed, he immediately reinstalled the
connecting rod in the automobile from which it was taken,
or whether he laid it upon a shelf and subsequently ex-
changed it for another used, second-hand connecting rod
of the same type. The question is, "What did the re-
babbitter do?" Did he produce or manufacture a new
article? Did he merely repair an article which someone
had previously produced or manufactured? Manifestly,
he has repaired a connecting rod. His work commenced
after the manufacture or production of that connecting
rod had long since been completed and the rod had actually
seen service as an operating part of an automobile engine.

The meaning of the words, "manufacturer" and "pro-
ducer" is clear. A manufacturer is one who makes some-
thing new, according to Webster's New International Dic-
tionary :

"1. To make (wares or other products) by ma-
chinery or by other agency; as to manufacture cloth,
nails, glass, etc., to produce by labor, esp., now, ac-
cording to an organized plan and with division of
labor, and usually with machinery."

2. To work, as raw or partially wrought materials,
into suitable forms for use, as to manufacture wool,
iron, etc.

3. To fabricate; to invent; also, to produce me-
chanically ;

The terms manufacture and produce must be com-
pared with the word "repair", a word which is
repugnant to and exclusive of manufacture or produce.

—7—

To repair, defined by Webster's New International
Dictionary, is to restore to a sound or good state
after decay, injury, dilapidation, or partial destruc-
tion; as to repair a house, a road, a shoe, also to
renew, revive or rebuild.

The principles involved in this case were recognized and
stated by the court in Thurman, Collector v. Swisshelm
(C. C. A. 7), 36 Fed. (2d) 350. In that case the tax-
payer dealt in automobiles. They bought completed Ford
automobiles from the Ford Motor Company or its agents.
They bought from the Ames Company automobile bodies
so constructed that they would fit the Ford chasses.
They would remove the Ford bodies from the automobiles
and replace them with the Ames bodies. The question
was whether the taxpayer by that process became the
manufacturer or producer of automobiles so as to become
liable for the manufacturer's excise tax on the automobiles.
The court held that they were not manufacturers or pro-
ducers of automobiles. The court then distinguished the
case of Klepper v. Carter, 286 Fed. 370, which is cited by
appellant as authority, and said 1. c. 351 :

"The facts are different in that there was no truck
figured in the transaction until the parts had been
assembled and connected; while here appellees bought
the completed automobile upon which the tax had
already been paid."

The principles underlying the Swisshelm case is in no-
wise different from the case at bar. Swisshelm com-
menced his process with automobiles completely manufac-
tured and tax paid by the manufacturer; the appellee in

this case commenced its work with connecting rods pre-
viously manufactured and tax paid by a manufacturer.
When Swisshelm finished his process, he still had an auto-
mobile— he had created nothing new; when appellee in
this case completed its process, it still had connecting
rods — it had created nothing new.

The courts have been frequently called upon to define,
and apply the definition of, manufacture. A leading and
often cited case is Hartranft v. Wiegmann, 121 U. S.
609. The issue in that case concerned the rate of duty to
be levied upon certain shells depending upon whether
they were or were not "manufactured". The question in-
volved and the facts are stated in the opinion by Mr. Jus-
tice Blatchford, as follows, 1. c. 613-14:

"The question is whether cleaning of! the outer
layer of the shell by acid, and then grinding off the
second layer by an emery wheel, so as to expose the
brilliant inner layer is a manufacture of the shell,
the object of these manipulations being simply for
the purpose of ornament, and some of the shells being
afterwards etched by acids, so as to produce inscrip-
tions upon them. It appears that these shells in ques-
tion were to be sold for ornaments, but that shells
of these descriptions have also a use to be made into
buttons and handles of penknives; and that there is
no difference in name and use between the shells
ground on the emery wheel and those not ground. It
is contended by the government that the shells pre-
pared by the mechanical or chemical means stated
in the record, for ultimate use, are shells manufac-
tured, or manufacturers of shells, within the meaning
of the statute."

The conclusion of the court and the reasoning support-
ing it are set forth in the following excerpt from the
opinion, 1. c. 615:

"We are of the opinion that the shells in question
here were not manufactured, and were not manufac-
tures of shells, within the sense of the statute impos-
ing a duty of 35 per centum upon such manufac-
turers, but were shells not manufactured, and fell un-
der that designation in the free list. They are still
shells. They had not been manufactured into a new
and different article, having a distinctive name, char-
acter or use from that of a shell. The application
of labor to an article, either by hand or by mechanism,
does not make the article necessarily a manufactured
article, within the meaning of that term as used in
the tariff laws. Washing and scouring wool does not
make the resulting wool a manufacture of wool.
Cleaning and ginning cotton does not make the result-
ing cotton a manufacture of cotton. In 'Schedule M'
of Section 2504 of the Revised Statutes, page 475,
2nd Edition, a duty of 30 per cent ad valorem is
imposed on 'coral, cut or manufactured'; and, in Sec-
tion 2505, page 484, 'coral, marine, unmanufactured',
is exempt from duty. These provisions clearly imply
that, but for the special provisions imposing a duty on
cut coral, it would not be regarded as a manufactured
article, although labor was employed in cutting it. In
Frazee v. Moffit, 20 Blatchf. 267, it was held that hay
pressed bales, ready for market, was not a manufac-
tured article, although labor had been bestowed in cut-
ting and drying the grass and baling the hay. In
Lazvrence v. Allen, 48 U. S. 7 How. 785, it was held
that india rubber shoes, made in Brazil, by simply
allowing the sap of the india rubber tree to harden
upon a mold, were a manufactured article because it

—10—

was capable of use in that shape as a shoe, and had
been put into a new form, capable of use and design
to be used in such new form. In United States v.
Potts, 9 U. S. 5 Cranch 284, round copper plates
turned up and raised at the edges from four to five
inches by the application of labor, to fit them for
subsequent use in the manufacture of copper vessels,
but which were still bought by the pound as copper
for use in making copper vessels, were held not to
be manufactured copper. In the case of United
States v. Wilson, 1 Hunt's Merchants' Magazine 167,
Judge Betts held that marble which had been cut into
blocks for the convenience of transportation was not
manufactured marble, but was free from duty, as
being unmanufactured.

"We are of the opinion that the decision of the
circuit court was correct. But, if the question were
one of doubt, the doubt would be resolved in favor
of the importer, 'as duties are never imposed on
citizens upon vague or doubtful interpretations'.
Powers v. Barney, 5 Blatchf. 202; U. S. v. Isham,
84 U. S., 17 Wall. 496, 504; Gurr v. Scudds, 11
Exch. 190, 191 ; Adams v. Bancroft, 3 Sumn. 384."

In Anheuser-Busch Brezvincj Association v. U. S., 207
556, the plaintiff sued to recover certain import duties
which it had paid on corks designed for use in bottling
beer. Under the act there involved plaintiff was required
to prove as the basis of its refund or "drawback" that
the corks involved were not manufactured corks, but
merely materials imported to be used in the manufacture
of corks in the United States. The evidence showed that
the corks when imported into this country from Spain had
already been cut by hand to the required size. It was

—11—

further shown that in such condition, however, they were
not suitable for use in bottling beer because they would
not retain the gas in the bottle and because they would
impart a cork taste to the beer, thereby making it un-
marketable and unfit for use. After importation, how-
ever, the corks were subjected in the brewing company's
plant to various processes and treatment consuming several
days of time, during which the corks were treated, pro-
cessed, sealed and coated so as to render them useful for
the intended purpose. The court found that the process to
which the corks were subject did not constitute manufac-
ture; that the corks were manufactured before they were
imported and that the brewing company was not entitled
to its refund. In the opinion by Mr. Justice McKenna
it is said, 1. c. 559:

"The corks in question were, after their importa-
tion, subject to a special treatment which, it is con-
tended, caused them to be articles manufactured in the
United States of 'imported materials' within the mean-
ing of Section 25. The Court of Claims decided
against the contention and dismissed the petition. 41
Ct. CI. 389.

"The treatment to which the corks were subjected
is detailed in Finding 3, inserted in the margin.

"In opposition to the judgment of the Court of
Claims counsel have submitted many definitions of
'manufacture', both as a noun and a verb, which, how-
ever applicable to the cases in which they were used,
would be, we think, extended too far if made to cover
the treatment detailed in Finding 3 or to the corks
after the treatment. The words of the statute are
indeed so familiar in use and meaning that they are
confused by attempts at definition. Their first sense
as used is fabrication or composition, — a new article

—12—

is produced of which the imported material constitutes
an ingredient or part. When we go further than this
in explanation, we are involved in refinements and in
impractical niceties. Manufacture implies a change,
but every change is not manufacture, and yet every
change in an article is the result of treatment, labor,
and manipulation. But something more is necessary,
as set forth and illustrated in Hartranft v. Wieg-
mann, 121 U. S. 609, 7 Sup. Ct. Rep. 1240. There
must be transformation; a new and different article
must emerge, 'having a distinctive name, character or
use' '. This cannot be said of the corks in question. A
cork put through the claimant's process is still a
cork."

In Hughes v. City of Lexington, 277 S. W. 981, the
appellant was a corporation engaged in the business of
making and selling ice cream. Nevertheless, the City of
Lexington contended that the corporation was not en-
gaged in manufacturing within the meaning of the state
statutes which exempt from city taxes machinery, ma-
terial and supplies used in manufacturing. In the opinion
by Clark, C. J., it is said, 1. c. 982:

"The sense in which the term is here used, as well
as the purpose intended to be accomplished by the
act, is quite plain. Obviously, the term 'engaged in
manufacturing' was not employed in any technical
sense, but must be accorded its ordinary meaning as
commonly understood. And, while incapable of exact
definition, nevertheless it is true, as was stated in
several of the above cases, that according to common
understanding and generally speaking, manufacturing
consists in the application of labor or skill by hand

—13—

or machinery to material so that as a result thereof,
a nezv, different and useful article of commerce is
produced."

The foregoing- cases emphasize and reiterate the prin-
ciple that whether a given process constitutes manufac-
turing depends upon whether the process results in the
creation of a new thing. If that which emerges at the
conclusion of the process is the same thing which entered
the process at its beginning, notwithstanding some labor
and some new materials have been expended upon it dur-
ing the process — in other words, if the thing retains its
identity during the course of the process and after it is
completed — then no manufacturing or production has oc-
curred. If the article before the process commenced was
a cork and it emerged from the process still a cork, there
has been no manufacture. By the same token, the prin-
ciple as applied to the case at bar leads inevitably to the
conclusion that since the connecting rods in question did
not lose their identity during the rebabbitting process,
but were connecting rods when they entered plaintiff's
plant and were still connecting rods when they left the
plant, there was no manufacture.

(b) The Mere Repair, Restoration or Recondition-
ing of an Article Does Not Constitute Manu-
facturing or Production.

An essential distinction must be preserved between
manufacture which, as above shown, results in the creation
of a new article, and mere repair which results only in
the restoration of partial injury but does not create a new
article. When an article which consists of several com-
ponent parts sustains wear or suffers injury to one of

—14—

those parts, the plain economics of the situation dictate
that the injured part, if possible, shall be replaced or re-
paired, rather than that the entire article shall be waste-
fully discarded. A man may drop his watch and break
the balance staff so that its usefulness as a timepiece is,
for the time being, destroyed. But in such a case the owner
does not throw his watch away and buy another. Instead,
he takes it to a skilled mechanic who replaces the broken
or damaged part and restores the watch to its former con-
dition of usefulness. No one would argue in such a case
that the jeweler had manufactured a watch. The admitted
fact is that the owner took a watch to him. True, the
watch was damaged and would not operate, but it was,
nevertheless, a watch. After the jeweler had repaired
the balance staff, it was still a watch — the same watch.
It never lost its identity as a watch. Such is the process
of repair or restoration as distinguished from the process
of manufacture.

The distinction between repair or restoration, on the
one hand, and manufacture or construction, on the other
hand, is often called in question and decided in patent
cases.

Perhaps the leading case in this field is Wilson v.
Simpson, 9 How. 109. In that case the owner of a pat-
ented planing machine had repaired or reconditioned his
machine by placing therein certain new parts, particularly
the knives or cutting tools which were the important opera-
tive agency of the machine or, as it is sometimes said,

— 15—

the ultimate effective tool. Notwithstanding the fact that
the cutting tools were the most vital and important part
of the machine and did the very work for which the
machine was designed, the court had no difficulty in find-
ing that their replacement constituted only repair of the
machine and not manufacture or production of a new
machine so as to infringe the patent. In the opinion by
Mr. Justice Wayne it is said, 1. c. 123:

"But it does not follow, when one of the elements
of the combination has become so much worn as to be
inoperative, or has been broken, that the machine no
longer exists, for restoration to its original use, by
the owner who has bought its use. When the wear-
ing or injury is partial, then repair is restoration and
not reconstruction.

"Illustrations of this will occur to anyone, from
the frequent repairs of many machines for agricul-
tural purposes. Also from the repair or replacement
of broken or worn-out parts of larger and more com-
plex combinations for manufactures.

"In either case, repairing partial injuries, whether
they occur from accident or from wear and tear, is
. only refitting machine for use. And it is no more
than that, though it shall be a replacement of an
essential part of a combination. It is the use of the
whole of that which a purchaser buys, when the
patentee sells to him a machine; and when he repairs
the damages which may be done to it, it is no more
than the exercise of that right of care which every-
one may use to give duration to that which he owns,
or has a right to use as a whole."

—16—

In Hess-Bright Mfg. Co. v. Bearing Co., 271 Fed. 350,
the court considered a case involving the alleged infringe-
ment of a patent upon a ball bearing. The bearing con-
sisted of a groove of a certain depth with balls exactly
fitting it. The vendee of this patented bearing reground
or smoothed up the groove, an operation which necessarily
resulted in somewhat enlarging the groove. This neces-
sitated installing larger balls to fit the enlarged groove.
The question was whether or not the owners of the bear-
ing had constructed a new bearing so as to infringe the
patent or whether he had merely repaired his bearing.
The court found that there was no manufacture involved
in the process and that the patent had not been infringed.
In the opinion by Dickinson, district judge, it is said,
1. c. 351:

"Council for plaintiff does not, of course, formulate
the claim of right as defendant states it. He does
not deny to the vendee of plaintiff the right to repair.
What he does deny is any right, by using plaintiff's
bearing as a model, to make a new bearing from the
raw material of the old one. It is obvious that all
this is nothing more than opposing statements of the
effect of what the defendant had done. The defend-
ant calls it the repair of old bearings. The plaintiff
calls it new construction or reconstruction. Omitting
the name properly to be applied to what was done,
the fact finding is made that what was done was
the regrinding of the groove of old bearings, and,
when required, the substitution of new balls to fit the
grooves enlarged by the regrinding.

"The dividing line between repairs and a making
over cannot be verbally located. What has been done
can with more or less confidence be pronounced to
be one or the other, but neither the one nor the

—17—

other can be denned. The judgment pronounced must
in consequence partake of the ipse dixit or rescript
character. A further consequence is that the ad-
judged cases provide us with little for our guidance.
With no thought of finding a better mode of expres-
sion for the clearly presented views of counsel for
plaintiff, it may be premised that a feature of the
patented bearing is the metallic pathway provided in
the form of a groove, which calls for the use of balls
of a certain size. The nicety of adjustment required
can be most emphatically expressed by the statement
that the unit of measurement employed is the ten-
thousandth part of an inch. This groove may, from
use or abuse, be in need of being remade by regrind-
ing. The lightest repolishing, almost, is such.

"The argument that this is not repair, but a new
construction, may be thus expressed : A bearing with
a groove of a certain depth, with balls exactly fitting
it, is sold by the plaintiff to A. Another bearing,
with a different groove, calling for the next larger
size balls, is sold to B. The first vendee smooths up
the groove in his bearing, thus adopting it to the next
larger size of balls. By so doing he has not repaired
the bearing sold to him, but out of the material in
this old bearing he has made a new one, which is not
his old bearing, but a different bearing of the B type.
In other words the old A bearing has lost its identity
by destruction, and a new bearing, B, has been made.
In a sense this is, of course, true; but it is only true
in a sense. Identity is not lost by a mere change in
size. The rule of which we are in search is a prac-
tical rule for the guidance of practical men in prac-
tical business. What the patentee sells is a concrete
thing. It is a bearing. As long as it remains the
bearing of the patent, it is what the patentee sold.
The moment it becomes something else the patentee

—18—

is not concerned with it. The groove of the patent
is still the groove of the patent, although enlarged.
It no more loses its identity by enlargement than a
river does by the change of the volume, due to the
flow and ebb of the tide, or by the shoaling or deep-
ening of its channel by the wash of its current.

"The balls are no part of the groove, but some-
thing used with it. There is no thought of denying
the right of a vendee to repair balls. His right is
not limited to any size of ball. The balls may be
replaced without thought of infringement of any
patent right. To deny vendee the right to smooth
up a groove is to deny him all right to make repairs
to the patented features of what was sold to him.
The right cannot be limited to the use of the same
balls as before. The only limitation is that he may
repair, but cannot make a new bearing out of the
material of the old. What is the one and what the
other the facts of each case must determine. The
line, as before observed, is most difficult to draw in
words of description; it is by no means so difficult
to draw in fact.

"In the instant case our fact finding is that what
defendant has done is to make repairs, and that it
has not infringed upon the patent rights of plaintiff.
The name given to anything is not necessarily indica-
tive of what the thing is. A fact upon which de-
fendant lays much stress has some interest as a co-
incidence, but no other value. The fact referred to
is that the plaintiff itself did what the defendant has
done, and the department in charge of such work
was called by plaintiff its 'Repair Department'. We
attach as little importance to the distinction between
repairing and selling second-hand bearings after they
have been repaired."

—19—

In Foglesong Machine Co. v. Randall Co. (C. C. A. 6),
239 Fed. 893, the defendant, being the owner of a pat-
ented machine for the stuffing of horse collars, was ac-
cused of infringing the patent by making certain repairs
upon the machine. The court found that certain parts
of the machine were perishable in that they were subject
to greater wear than other parts. In that connection the
court said, 1. c. 895 :

"The question for decision is: Did the defendant
repair or reconstruct the machine which it purchased
from the Grand Rapids Company? In supplying a
new hopper, stuffing rod nose, and disc, the defend-
ant merely returned to use the injured or lost por-
tions of the mechanism. This constitutes repairing,
and not reconstruction."

At another point the court said, 1. c. 896:

"The machine was not so broken and worn out as
to require replacement. The wear and injury were
but partial. Under such circumstances, repair is not
reconstruction, but restoration, that the mechanism
may be kept up to the full performance of its duty."

In Goodyear Shoe Machine Co. v. Jackson (C. C. A. 1),
112 Fed. 146, it is said in the opinion by Colt, C. J.,
1. c. 151:

"Where the patent is for a machine, which com-
monly embraces the combination of many constituent
elements, the question of infringement by the pur-
chaser will turn upon whether the machine is only
partially worn out or partially destroyed, or is en-
tirely worn out, and so beyond repair in a practical
sense. In the case of a patent for a planing machine
composed of many parties it was held that the re-

—20—

placement of the rotary knives, 'the effective ultimate
tool' of the machine, was repair, and not reconstruc-
tion, Wilson v. Simpson, 9 How. 109. "

A further statement of the principle involved, together
with a citation of many cases, is found in Miller Hatch-
eries v. Incubator Co. (C. C. A. 8), 41 Fed. (2d) 619.

In State v. J. J. Newman Lumber Co. (Miss.), 59 So.
923, the distinction between manufacture and repair is
clearly stated by the Supreme Court of Mississippi as fol-
lows, 1. c. 926:

"A reasonable definition may be given to 'manu-
facturing' (Century Dictionary) as the system of in-
dustry which produces manufactured articles, and to
'manufacture' as the production of articles for use
from raw or prepared materials, by giving to these
materials new forms, qualities, and properties, or com-
binations, whether by hand labor or machinery, used
more especially of production in a large way by 'Re-
pair' is to make whole or restore an article or thing
to its completeness. In the general knowledge of the
affairs of business and life, it will hardly be difficult
to class those persons who are engaged in such em-
ployment."

Applying the principles announced and reiterated in
the foregoing cases to the facts of the case at bar, it is
clear that the injury to the used, second-hand connecting
rods which the plaintiff acquired and rebabbitted was but
partial. Only the babbitt lining was injured or destroyed.
They were not "entirely worn out, and so beyond repair
in a practical sense" (Goodyear Shoe Machinery Co. v.
Jackson, 112 Fed. 146, 151), is conclusively proved by the
fact that the plaintiff did restore them to their former

—21—

condition of usefulness by the simple expedient of re-
babbitting them.

The physical facts speak for themselves. This Court
has before it a box of connecting rods in various stages
of rebabbitting. These exhibits themselves are the most
eloquent testimony obtainable that the rods before re-
babbitting were not entirely worn out and were not
beyond repair in any sense, but had sustained only partial
wear or injury. These rods were not "junk", and had
not been discarded by their former owners as is con-
tended by the appellant. On the contrary, they had been
carefully preserved and had been sent to this plaintiff
either directly or through jobbers so that they might be
rebabbitted or exchanged for other rods of a similar type
which had already been rebabbitted.

J. Leslie Morris, testifying for the plaintiff, when asked
what percentage of the connecting rods were procured
from jobbers, stated [R. 119]:

"A. Approximately 95 per cent."

If these connecting rods were so far worn out and so
beyond repair that they ceased to have any value over
and above the melting pot value of the metal contained in
them, why did appellee value them as high as $12.00 each
[R. 113], when the top price for that kind of scrap steel
was $11.00 a ton?

There was no evidence that the used, second-hand con-
necting rods which the plaintiff rebabbitted were, prior to
the rebabbitting, so worn out and beyond repair that they
had ceased to be connecting rods. On the contrary, un-
der the undisputed evidence in this case, it is conclusively
proved and established that these connecting rods had a

—22—

commercial value to the plaintiff and to other concerns
engaged in the rebabbitting business far in excess of their
"junk value". It is obvious that the comparatively great
commercial value of used rods in excess of the melting
pot value of the metals contained therein is due entirely
to the fact that these rods may be restored to their former
condition of usefulness and mechanical efficiency by a
process of repair. This is the principle which underlies
the decision of the Supreme Court in Cadzvalader v. Jessup
& Moore, 149 U. S. 350. In that case the Supreme Court
was called upon to decide whether certain imports of old
india rubber shoes were dutiable as crude india rubber or
as articles composed of india rubber. The shoes were
so worn as to be beyond repair and for that reason they
had ceased to be shoes and were valuable only for the
rubber which they contained. It is said in the opinion
by Mr. Justice Blatchford at page 354:

"The uncontradicted testimony is to the effect that
the only commercial use or value of the old india
rubber shoes, or scrap rubber, or rubber scrap in
question, is by reason of the india rubber contained
therein, as a substitute for crude rubber; that the
old shoes were of commercial use and value only by
reason of the india rubber they contained, as a sub-
stitute for crude rubber, and not by reason of any
preparation or manufacture which they had under-
gone; that they could not fairly be called 'articles com-
posed of india rubber', and as such dutiable at 25
per centum ad valorem; and that, although the shoes
may have been originally manufactured articles com-
posed of india rubber, they had lost their commercial

—23—

value as such articles, and substantially were merely
the material called 'crude rubber'. They were not
india rubber fabrics, or india rubber shoes, because
they had lost substantially their commercial value as
such."

The appellant herein compares the above case to the
case at bar, stating that the india rubber shoes had lost
their commercial value as such articles, and substantially
were the material called "crude rubber". It is agreed
that they are correct in reference to the shoes, because
they were not imported as used shoes to be repaired, but
only for their value as crude rubber. In the instant case
the connecting rods are repaired to restore them to their
former condition of usefulness. If the appellee had con-
verted the connecting rods into some other automobile part
then there might be some color of right in the appellant's
contention; in fact, this action would never have been
instituted.

The appellant bases great emphasis upon the decision
in the case of Clawson & Bah v. Harrison, 108 Fed. (2d)
991. In order to get a clear picture of this case it is
necessary to refer to the findings of fact and conclusions
of law as found by the trial court. This case is not pub-
lished in the National Reporter System, but may be found
in Commerce Clearing House, 1939 Standard Federal Tax
Service, Vol. 4, Paragraph 9219.

Clawson & Bals had new connecting rod forgings made
for them, which they machined and babbitted. During
part of the period covered by their suit, they removed all

—24—

marks of identification from rods manufactured by Gen-
eral Motors Corporation and subsidiaries. They also re-
babbitted used and second-hand connecting rods. At para-
graph 10 of the findings of fact the trial court found:

" Plaintiff kept but one stock with respect to each
number and had but one outright price with respect
to the rods, irrespective of whether they were pro-
duced from entirely new castings or from scrap, and
regarded the articles made from scrap as equivalent
to any similar products made entirely from virgin
metal. The rods made from scrap were in competi-
tion with similar products made entirely of virgin
metal and were just as serviceable. They were held
out for sale and sold on the same basis and under
the same warranties as the connecting rods produced
from entirely virgin forgings. In other words, plain-
tiff made no distinction between such connecting rods
in the numbering, cataloging, selling, billing, advertis-
ing, shipping, labeling, pricing, marketing, quality,
warranty, guaranty or otherwise."

As stated before, Clawson & Bals dealt in three kinds
of connecting rods; newly-manufactured ones, rebab-
bitted rods on which the identification marks had been
removed and other rebabbitted rods. They at all times
held themselves out as manufacturers, as in truth they
were. As manufacturers they paid excise tax on all sales
of rods, but did not include as part of the sale price the
exchange value of the old rods received as part of the
selling price. Later the Government assessed a total of
$54,232.02, representing tax and interest on the addi-
tional selling price as represented by the value of the old
rods received in exchange. Immediately Clawson & Bals
objected on the ground that they were only rebabbitters

—25—

of a part of the rods sold by them and that the additional
tax paid by them of $54,232.02 should be refunded as
representing the tax on the sale of rebabbitted connecting
rods.

It is submitted that the facts in the Clawson & Bals
case are entirely different from the facts in the case at
bar. Clawson & Bals did manufacture new connecting
rod forgings from virgin metal, they removed identifica-
tion marks from a part of the rods rebabbitted by them,
they were manufacturers and held themselves out as such,
whereas the appellee herein never manufactured a con-
necting rod, or held itself out as a manufacturer, never
removed any identification marks from the rods and, in
fact, never did more than repair used and damaged con-
necting rods.

The appellant also cites as authority The King v. Bilt-
rite Tire Co., 1937 Canadian Law Reports 1, and The
King v. Boultbee, Ltd. (1938), 3 Dominion Law Reports
664. However, it is contended by appellee that our courts
must give precedent to the cases decided in our own coun-
try and must consider as law the overwhelming authori-
ties therein established before resorting to cases decided in
foreign courts.

In view of the uncontradicted testimony in the case at
bar that the used, second-hand rods which appellee ac-
quired and rebabbitted by reason of the preparation and
manufacture which they had previously undergone, had
a commercial value as connecting rods which was far in
excess of the junk value of the metals therein contained.
It is respectfully submitted that the findings and judg-
ment of the learned trial court were correct and should
be affirmed.

—26—

Taxing Statutes Must Be Strictly Construed and
Should Be So Construed as to Produce Uniformity
and Equality in Their Application. Their Pro-
visions Cannot Be Extended by Implication.

There was no dispute at the trial of this case as to
the methods employed by the plaintiff in rebabbitting auto-
mobile connection rods. In fact the method was covered
by a series of 32 pictures and an explanatory statement for
each, which were introduced as Plaintiff's Exhibits 1 to 32.

The Government produced no direct evidence whatever
that the rebabbitting of connecting rods is a manufactur-
ing process or that the rebabbitting of connecting rods
constitutes the manufacture of connecting rods.

Being totally without any direct evidence that rebab-
bitting is a manufacturing process, the Government ap-
parently attempted to prove its case by the use of a
syllogism which runs something like this: All large estab-
lishments employing many men, using many machines and
turning out a large volume of work, doing business on a
large scale and publishing catalogues in which their
product is described, are manufacturing establishments;
plaintifT has all these characteristics; therefore, plaintiff
is a manufacturing establishment. The major premise of
this syllogism is, of course, untrue, and the conclusion is,
therefore, completely false. Size and extent and volume
of business do not constitute the test of manufacture. It
is common knowledge that there are many machine shops
much larger than plaintiff's which manufacture nothing,
but are engaged only in repair work.

If the taxing statute here involved is to be applied
and administered by testing whether a company is a manu-
facturer or a repairman by determining whether it does

—27—

business on a large scale or on a small scale, and whether
it employs many men or few men, then the administra-
tion of the taxing statute will result in the greatest in-
equality and lack of uniformity. The rebabbitter who
sells several thousand connecting rods a month will be
taxed because he is large and the rebabbitter who sells
only a few connecting rods a month will not be taxed
because he is small.

The mere fact that ownership of the connecting rods
was vested in the appellee does not affect its status as
a repairer. There is nothing to prevent appellee from
acquiring title to used connecting rods or other automo-
bile parts and repairing them before offering them for
sale. Certainly there is no conflict here between the re-
pairman being also the owner and vendor or only the
repairman of the used connecting rods for others.

The true test, and the only test, is whether the rebab-
bitting process itself results in the creation of a new
article, or whether it only accomplishes the restoration of
an article already created. That is the test which can
be applied to every rebabbitter and will result in abso-
lute equality and uniformity of administration of the
taxing statute.

In City of Louisville v. Zinmeister (Ky.), 222 S. W.
958, 1. c. 959, the Supreme Court of Kentucky said :

"In the recent case of Lorrilard Co. v. Ross, Sheriff,
183 Ky. 217, 209 S. W. 39, we held that the word
'manufacture', in the sense in which it is employed
in the statutes quoted above, does not import the

—28—

means or methods employed, or the nature or number
of processes resorted to, or the size of the factory
or the number of hands it employs, or the value of
machinery in use, but the result accomplished, whether
the article is manufactured or not."

It is elementary that taxing statutes are to be con-
strued strictly in favor of the taxpayer. This means that
the tax must be based upon express statutory authority
and cannot be imposed by implication. In Hartranft v.
Wiegmann, 121 U. S. 609, it is said in the opinion by
Mr. Justice Blatchford, at page 616:

"We are of the opinion that the decision of the
Circuit Court was correct. But, if the question were
one of doubt, the doubt would be resolved in favor
of the importer, 'as duties are never imposed on a
citizen upon vague or doubtful interpretations'.
Powers v. Barney, 5 Blatchf. 202; United States v.

I sham, 84 U. S., 17 Wall. 496, 504; Gurr v. Scudds,

II Exch. 190, 191; Adams v. Bancroft, 3 Sumn.
384."

In Miller v. Standard Nut Margarine Co., 284 U. S.
498, it is stated in the opinion by Mr. Justice Butler, at
page 508:

"It is elementary that tax laws are to be inter-
preted liberally in favor of taxpayers and that words
defining things to be taxed may not be extended be-
yond their clear import. Doubts must be resolved
against the government and in favor of taxpayers.
United States v. Merriam, 263 U. S. 179, 188, 29
A. L. R. 1547, 44 S. Ct. 69; Bowers v. Nezv York &
A. Lighterage Co., 27 Z U. S. 346, 350, 47 S. Ct.
398."

—29—

In Erskine v. United States (C. C. A. 9), 84 Fed. (2d)
690, 691, it is said:

"Such revenue acts must be construed strictly in
favor of the appellant sought to be charged as im-
porter. He is 'entitled to the benefit of even a doubt.'
Tariff Act 1897, 30 Stat. 151 ; United States v. Riggs,
203 U. S. 136, 1939, 27 S. Ct. 39, 40, 51 L. Ed. 127;
Hartranft v. Wiegmann, 121 U. S. 609, 616, 7 S.
Ct. 1240, 30 L. Ed. 1012; Miller v. Standard Nut
Margarine Co., 284 U. S. 498, 508, 52 S. Ct. 260,
76 L. Ed. 422."

In Bankers Trust Co. v. Bowers (C. C. A. 2), 295
Fed. 89, 96, it is said that the construction placed on a
statute should avoid unjust consequences unless the act
compels such a result. This is particularly true of a tax-
ing statute where absolute uniformity and equality are
to be preserved.

In Alaska Consolidated Canneries v. Territory of Al-
aska (C. C. A. 9), 16 Fed. (2d) 256, 1. c. 258, it is said
in the opinion by Rudkin, C. J. :

"Of course there is a presumption that laws, and
especially tax laws, will have a prospective operation
only; but there is a like presumption that they are
intended to operate uniformly and equally upon all
and, in the end, the question is one of legislative in-
tent/'

The contention of the Government that some distinc-
tion may be made predicated upon the fact that the appel-
lee is a large operator would seem to be specifically
refuted by the case of Spreckels Sugar Refining Co. v.
McClain (C. C. A. 3), 113 Fed. 244, opinion by Circuit
Judge Dallas. In that case the statute imposed an excise

—30—

tax on all gross receipts in excess of the sum of
$250,000.00 per annum. A monthly return was required
by the law, which did not specifically require anything but
an annual payment of tax. The Spreckels Company filed
a return for the first month, showing receipts in excess of
the sum of $250,000.00, and it was contended that the
law should be construed so as to force the company to
pay the tax monthly. The court held that the construc-
tion of the act contended for by the Government was "so
questionable as to render it inadmissible to impose a duty
upon a citizen", citing the Hartranft case, and further
held that such an inequality in the administration of the
law could not be imposed upon the plaintiff simply because
the returns were so large that its first monthly return
exceeded $250,000.00. The court said in the opinion,
1. c. 247:

"We have already pointed out that it is not neces-
sary to put an interpretation upon this section which
might involve such inequality in its administration
and, except by necessity, no such interpretation could
be justified."

Thus it can be seen that the court weighed the very
points which are here urged by the appellant and specific-
ally decided that large size of the plant, number of em-
ployees and magnitude of operations would not constitute
the test of the application of the statute.

It is a cardinal principle of tax law that any doubt
shall be resolved against the taxing authority. To do
otherwise in this action would be to work great hardship
upon the appellee and controvert all established law on
that point.

—31—

The Bureau of Internal Revenue has no authority to
attempt to amend any congressional act or extend the
meaning thereof by regulation. This principle is clearly
pointed out by the Supreme Court in Koshland v. Hel-
vering, 298 U. S. 441, 446; Manhattan General Equip-
ment Co. v. Commissioner, 297 U. S. 129, 134.

Had Congress intended the tax herein involved to at-
tach to the sale of repaired automobile parts such pro-
vision would have been put in the Internal Revenue Act
of 1932. Failure to put such provision in that act
shows clearly that it intended for the tax to attach to
the sale of only newly-manufactured parts.

Appellee respectfully submits that, in the public inter-
est, as well as to prevent injustice to this appellee, the
judgment of the learned trial court should be sustained
to the end that fairness, equality and uniformity in the
administration and collection of federal manufacturer's
excise tax shall be insured.

Conclusion.

It is submitted that the evidence supports the findings
of fact, conclusions of law and opinion of the trial court,
and that the judgment should be affirmed.

Respectfully submitted,

Darius F. Johnson and
Meserve, Mumper & Hughes,

Attorneys for Appellee.

APPENDIX.

Revenue Act of 1932, c. 209, 47 Stat. 169:

Sec. 606. Tax on Automobiles, etc.

There is hereby imposed upon the following articles sold
by the manufacturer, producer, or importer, a tax equiva-
lent to the following percentages of the price for which
so sold :

(c) Parts or accessories (other than tires and inner
tubes) for any of the articles enumerated in subsections
(a) or (b), 2 per centum. * * *

Treasury Regulations 46, approved June 18, 1932:

Art. 4. Who is a manufacturer or producer. — As used
in the Act, the term "producer" includes a person who
produces a taxable article by processing, manipulating,
or changing the form of an article, or produces a taxable
article by combining or assembling two or more articles.

No. 9746.
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

United States of America,

Appellant,

vs.

J. Leslie Morris Company, Inc., a corporation,

Appellee.

PETITION FOR REHEARING ON BEHALF OF
THE APPELLEE, J. LESLIE MORRIS COM-
PANY, INC., A CORPORATION.

Darius F. Johnson,
1124 Van Nuys Building, Los Angeles,

Meserve, Mumper and Hughes,
615 Richfield Building, Los Angeles,

Attorneys for Appellee.

I

Parker & Baird Company, Law Printer*, Lea jAfffle^ i" ttaCSif: *>*

OLEItk

TOPICAL INDEX.

PAGE

I.

The decision is in conflict with the law, the statute and decisions
of the Supreme Court and Circuit Court of Appeals for
other circuits 1

II.

Treasury Regulations 46, Article 4, approved June 18, 1932,
regulating taxation of automobile parts and accessories, under
paragraph 606(c) of the Revenue Act of 1932, does not pur-
port to levy a tax on the sale of rebabbitted automobile con-
necting rods 8

Conclusion 10

Certificate of counsel 10

TABLE OF AUTHORITIES CITED.

Cases. page

American Fruit Growers, Inc. v. Brogdex, 283 U. S. 1 7

Anheuser-Busch Brewing Association v. U. S., 207 U. S. 556
5, 7

Cadwalader v. Jessup & Moore, 149 U. S. 350 1

Clawson & Bals v. Harrison, 108 Fed. (2d) 991 9

Ely Norris Safe Company v. Mosler Safe Co., 62 Fed. (2d)

524 7

Foglesong Machinery Company v. J. D. Randall Company, 237

Fed. 893 7

Goodyear Shoe Machinery Company v. Jackson, 112 Fed. 146.... 7

Hartranft v. Wiegmann, 121 U. S. 609 ...2, 7

Hess-Bright Mfg. Co. v. Bearing Co., 271 Fed. 350 7

Thurman, Collector v. Swisshelm, 36 Fed. (2d) 350 9

Regulations.

Treasury Regulations 46, Art. 4 8

No. 9746.
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

United States of America,

Appellant,
vs.
J. Leslie Morris Company, Inc., a corporation,

Appellee.

PETITION FOR REHEARING ON BEHALF OF
THE APPELLEE, J. LESLIE MORRIS COM-
PANY, INC., A CORPORATION.

To the Honorable Circuit Court of Appeals for the Ninth
Circuit:

Appellee J. Leslie Morris Company, Inc., a corporation,
respectfully petitions for a rehearing of this appeal and
urges the court to reconsider its decision in this case for
the following reasons and upon the following grounds:

I.
The Decision Is in Conflict With the Law, the Statute
and Decisions of the Supreme Court and Circuit
Court of Appeals for Other Circuits.

The Supreme Court of the United States has announced
in its decision in the case of Cadwaladcr v. Jessup &
Moore, 149 U. S. 350:

'The uncontradicted testimony is to the effect that
the only commercial use or value of the old india

— 2—

rubber shoes, or scrap rubber, or rubber scrap in
question, is by reason of the india rubber contained
therein, as a substitute for crude rubber ; that the old
shoes were of commercial use and value only by rea-
son of the india rubber they contained, as a substitute
for crude rubber, and not by reason of any prepara-
tion or manufacture which they had undergone; that
they could not fairly be called 'articles composed of
india rubber/ and as such dutiable at 25 per centum
ad valorem; and that, although the shoes may have
been originally manufactured articles composed of in-
dia rubber, they lost their commercial value as such
articles, and substantially were merely the material
called 'crude rubber.' They were not fabrics or india
rubber shoes, because they had lost substantially their
commercial value as such." (Italics supplied.)

It is respectfully submitted that the connecting rods
which are the subject under discussion in the instant case
had a value far in excess of their value as raw material
because of the manufacturing processes they had previ-
ously undergone. Under the rule established by the above
case it is essential that the only value be that of raw
material. That if the value of the article results from the
manufacturing process previously undergone, then the
value is because of that manufacturing process, and not as
raw material. The record indicates that the appellee
herein paid from $1.60 to $1.90 for each connecting rod,
which was far in excess of the junk or raw material value.
[R. 124.]

Appellee cites Hartranft v. Wiegmann, 121 U. S. 609,
as an additional authority on the question of who is a
manufacturer and what is manufacturing. The issue in
that case concerned the rate of duty to be levied upon
certain shells depending upon whether they were or were

not "manufactured." The question involved and the
facts are stated in the opinion of Mr. Justice Blatchford,
as follows, 1 C. 613-14:

"The question is whether cleaning off the outer
layer of the shell by acid, and then grinding off the
second layer by an emery wheel, so as to expose the
brilliant inner layer is a manufacture of the shell, the
object of these manipulations being simply for the
purpose of ornament, and some of the shells being
afterwards etched by acids, so as to produce inscrip-
tions upon them. It appears that these shells in ques-
tion were to be sold for ornaments, and that shells of
these descriptions have also a use to be made into but-
tons and handles of penknives; and that there is no
difference in name and use between the shells ground
on the emery wheel and those not ground. It is con-
tended by the government that the shells prepared by
the mechanical or chemical means stated in the rec-
ord, for ultimate use, are shells manufactured, or
manufactures of shells, within the meaning of the
statute."

The conclusion of the court and the reasoning support-
ing it are set forth in the following excerpt from the
opinion 1. c. 615 :

"We are of the opinion that the shells in question
here were not manufactured, and were not manufac-
tures of shells, within the sense of the statute impos-
ing a duty of 35 per centum upon such manufac-
tures, but were shells not manufactured, and fell
under that designation in the free list. They are still
shells. They had not been manufactured into a new
and different article, having a distinctive name, char-
acter or use from that of a shell. The application of

— 4—

labor to an article, either by hand or by mechanism,
does not make the article necesarily a manufactured
article, within the meaning of that term as used in
the tariff laws. Washing and scouring wool does not
make the resulting wool a manufacture of wool.
Cleaning and ginning cotton does not make the re-
sulting cotton a manufacture of cotton. In 'Schedule
M' of Section 2504 of the Revised Statutes, page 475,
2nd Edition, a duty of 30 per cent ad valorem is im-
posed on 'coral cut or manufactured'; and in Section
2505, page 484, 'coral marine, unmanufactured', is
exempt from duty. These provisions clearly imply
that, but for the special provisions imposing a duty
on cut coral, it would not be regarded as a manufac-
tured article, although labor was employed in cutting
it. In Frazee v. Moffit, 20 Blatchf . 267, it was held
that hay pressed in bales, ready for market, was not
a manufactured article, although labor had been be-
stowed in cutting and drying the grass and baling
the hay. In Lawrence v. Allen, 48 U. S. 7 How.
785, it was held that india rubber shoes, made in
Brazil, by simply allowing the sap of the india rubber
tree to harden upon a mold, were a manufactured
article, because it was capable of use in that shape as
a shoe, and had been put into a new form, capable
of use and designed to be used in such new form. In
United States v. Potts, 9 U. S. 5 Cranch 284, round
copper plates turned up and raised at the edges from
four to five inches by the application of labor, to fit
them for subsequent use in the manufacture of cop-
per vessels, but which were still bought by the pound
as copper for use in making copper vessels, were held
not to be manufactured copper. In the case of
United States v. Wilson, 1 Hunt's Merchants'
Magazine 167, Judge Betts held that marble which
had been cut into blocks for the convenience of trans-

— 5—

portation was not manufactured marble, but was free
from duty, as being unmanufactured.

"We are of the opinion that the decision of the
circuit court was correct. But, if the question were
one of doubt ,the doubt would be resolved in favor of
the importer, 'as duties are never imposed on citizens
upon vague or doubtful interpretations.' Powers v.
Barney, 5 Blatchf. 202; U. S. v. Isham, 84 U. S., 17
Wall. 496, 504; Gurr v. Scudds, 11 Exch. 190, 191;
Adams v. Bancroft, 3 Sumn. 384." (Italics sup-
plied.)

The third case cited is Anheuser-Busch Brewing Asso-
ciation v. U. S., 207 U. S. 556, in which the plaintiff sued
to recover certain import duties which it paid on corks
designed for use in bottling beer.

Under the act there involved plaintiff was required to
prove as the basis of its refund or "drawback" that the
corks involved were not manufactured corks but merely
materials imported to be used in the manufacture of corks
in the United States. The evidence showed that the corks
imported into this country from Spain had already
been cut by hand to the required size. It was further
shown that in such condition, however, they were not
suitable for use in bottling beer because they would not
retain the gas in the bottle and because they would im-
part a cork taste to the beer, thereby making it unmarket-
able and unfit for use. After importation, however, the
corks were subjected in the brewing company's plant to
various processes and treatment consuming several days
of time, during which the corks were treated, processed,

sealed and coated so as to render them useful for the in-
tended purpose. The court found that the process to
which the corks were subject did not constitute manufac-
ture; that the corks were manufactured before they were
imported and that the brewing company was not entitled
to its refund. In the opinion by Mr. Justice McKenna
it is said, 1. c. 559:

"The corks in question were, after their importa-
tion, subject to a special treatment which, it is con-
tended, caused them to be articles manufactured in
the United States of 'imported materials' within the
meaning- of Section 25. The Court of Claims decided
against the contention and dismissed the petition. 41
Ct CI. 389.

"The treatment to which the corks were subjected
is detailed in Finding 3, inserted in the margin.

"In opposition to the judgment of the Court of
Claims counsel have submitted many definitions of
'manufacture/ both as a noun and a verb, which,
however applicable to the cases in which they were
used, would be, we think, extended too far if made
to cover the treatment detailed in Finding 3 or to the
corks after the treatment. The words of the statute
are indeed so familiar in use and meaning that they
are confused by attempts at definition. Their first
sense as used is fabrication or composition — a new
article is produced of which the imported material
constitutes an ingredient or part. When we go fur-
ther than this in explanation, we are involved in re-
finements and in impractical niceties. Manufacture

— 7—

implies a change, but every change is not manufac-
ture, and yet every change in an article is the result
of treatment, labor, and manipulation. But some-
thing more is necessary, as set forth and illustrated
in Hartranft v. Wiegmann, 121 U. S. 609, 7 Sup.
Ct. Rep. 1240. There must be transformation; a
new and different article must emerge, 'having a dis-
tinctive name, character or use.' This cannot be said
of the corks in question. A cork put through the
claimant's process is still a cork." (Italics supplied.)

Appellee contends that the preceding cases are directly
in point and are authority supporting the contention that
said appellee is not a manufacturer. Under the rule laid
down in Hartranft v. Wiegmann and Anheuser-Busch
Brewing Association v. U. S., supra, it is necessary that
a new and different article of commerce emerge in order
for "manufacturing" to exist.

In defining the meaning of words used in statutes im-
posing excise taxes it is always the practice of the courts
to look to other cases, including cases arising under the
tariff and patent laws for guidance. In this regard the
petitioner herein also relies on American Fruit Growers,
Inc. v. Brogdex, 283 U. S. 1 ; Goodyear Shoe Machinery
Company v. Jackson, 112 Fed. 146 (CCA. 1, 1901);
Foglesong Machinery Company v. J. D. Randall Com-
pany, 237 Fed. 893 (CCA. 6, 1917); Ely Norris Safe
Company v. M osier Safe Co., 62 Fed. (2d) 524 (CCA.
2, 1933) ; and II ess-Bright Mfg. Co. v. Bearing Co., 271
Fed. 350 (D. C Pa., 1921).

II.

Treasury Regulations 46, Article 4, Approved June 18,
1932, Regulating Taxation of Automobile Parts
and Accessories, Under Paragraph 606(c) of the
Revenue Act of 1932, Does Not Purport to Levy a
Tax on the Sale of Rebabbitted Automobile Con-
necting Rods.

Regulations 46, Article 4, was adopted for the purpose
of clarifying the Revenue Act of 1932. Otherwise it would
be claimed that certain operations which in themselves in-
volved no manufacturing whatever, were not subject to
the act, even though automobile parts or accessories were
produced. For instance, it would be possible to purchase
various items which are not taxable and assemble them
into automobile parts or accessories and sell them tax free
because there was no manufacturing. However, there was
certainly production, and the person so combining or as-
sembling them would certainly be a producer.

It is conceded by the appellant that there is no tax on
immediate repairs. However, this Honorable Court holds
that because of the fact that appellee operates on a large
scale, places quantities of rebabbitted connecting rods in
stock and sells them under the trade name "Moroloy" and
issues cataogues, that it is a "manufacturer or producer."
This places an undue burden on this petitioner because of
the size of its operations and the service it is prepared
to render.

Even though this petitioner conceded, which it does not,
that the above regulations had the force and effect of law,
they would be too vague and incomplete to impose a tax
upon the operations of appellee. This Honorable Court is
well aware of the rule that literal interpretations can be
insisted on in resistance to taxing statutes.

This Honorable Court places great emphasis on Claw-
son & Bals v. Harrison (CCA. 7), 108 Fed. (2d) 991,
in reaching its conclusions herein. However, that case
differed in many respects from the instant case, notably in
that Clawson & Bals were manufacturers of new connect-
ing rods in addition to being rebabbitters. They com-
mingled new and rebabbitted connecting rods and sold
them all as C & B rods, making no difference in guaranty,
cataloging or pricing. The purchasers had no way of
telling if they were getting entirely new connecting rods
or rebabbitted ones. Under the circumstances there exist-
ing the court could not reach any other conclusion than
that they were manufacturers. It is conceded that had
this appellee forged new connecting rods or contracted
with a foundry for their forging, that it would rightly be
classed as a manufacturer. However, that was not the
case. Ninety-five per cent of the connecting rods rebab-
bitted by appellee were received from wholesale automobile
parts jobbers in exchange for rebabbitted rods of the iden-
tical type. The remaining five per cent were purchased
from new car dealers and dealers in used parts. [R.
119-120.]

Petitioner cites Thurman, Collector v. Swisshelm (C
C A. 7), 36 Fed. (2d) 350. The principles underlying
the Swisshelm case do not differ from the instant case.
Swisshelm commenced his process with an automobile,
compeltely manufactured and tax paid by the manufac-
turer; the plaintiff in this case commenced its work with
connecting rods previously manufactured and tax paid by
the manufacturer. When Swisshelm finished his process,
he still had an automobile — he had created nothing new;
when appellee herein completed the rebabbitting process, it
still had connecting rods — it had created nothing new.

—10—

There is no evidence in the record to sustain the court's
statement that the connecting rods rebabbitted by appellee
had been discarded prior to acquisition by appellee. In
fact the record indicates that the rods had been carefully
saved by the wholesale automobile parts jobbers and sent
to appellee so that they might be rebabbitted and thereby
restored to their original condition of usefulness.

Conclusion.

By reason of the fact that the question involved herein
is of grave importance to not only the appellee, but also to
many other companies throughout the United States en-
gaged in the same business, and because certain misunder-
standings have already arisen wherein some of them
claim not to be affected by the decision because their oper-
ations differ somewhat from those detailed in the opinion
and findings of the trial court, it is respectfully submitted
that this Honorable Court grant a rehearing of this ap-
peal in order that the full import of the decisions of the
Supreme Court and Circuit Courts of Appeals involving
patent and tariff laws may be applied by this Honorable
Court in its decision of this appeal.

Respectfully submitted,

Darius F. Johnson and
Meserve, Mumper and Hughes,

Attorneys for Appellee.

Certificate of Counsel.

I, Darius F. Johnson, of counsel for the above appellee,
do hereby certify that the foregoing petition for rehearing
of this cause is presented in good faith and not interposed
for the purpose of delay.

Darius F. Johnson.

No. 9779

Unite* States

Circuit Court of Appeals

Jfor Hjc jeuntf) Circuit.

FANCHON & MARCO, INC., a Corporation,

Appellant,
vs.

HAGENBECK- WALLACE SHOWS COMPANY,
a Corporation,

Appellee.

®ran*crtpt of EecnrJ

Upon Appeal from the District Court of the United
States for the Southern District of California,
Central Division .^

FILED

1941

•Lsnc

PARKER PRINTING COMPANY. 848 SANSOliE STREET. SAN FRANCISCO

No. 9779

Hmteb States;

Circuit Court of appeals

Jfor tfje Jlmtft Circuit.

FANCHON & MARCO, INC., a Corporation,

Appellant,

vs.

HAGENBECK- WALLACE SHOWS COMPANY,
a Corporation,

Appellee.

Qfratticriipt of llkcorb

Upon Appeal from the District Court of the

United States for the Southern District

of California, Central Division.

PARKER PRINTING COMPANY. S4B SANSOME STREET. SAN FRANCISCO

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

Answer to Complaint 14

Appeal :

Bond on „ _ 49

Designation of Contents of Record on
Amended (District Court) 54

Designation of Contents of Record on, Ap-
pellant's (Circuit Court of Appeals) 287

Designation of Contents of Record on, Ap-
pellee's (Circuit Court of Appeals) 291

Designation of Contents of Record on (Dis-
trict Court) 52

Order Extending Time to File Record on 55

Statement of Points on _ 286

Stipulation re Exhibits 1 to 13 294

Attorneys, Names and Addresses of 1

Bond on Appeal „.„ 49

Certificate of Clerk to Transcript of Record 55

Certificate of Pre-trial Hearing 36

Complaint 2

Counterclaim 22

ii Fanchon & Marco, Inc., vs.

Index Page

Counterclaim, Amended 28

Decision 39

Designation of Contents of Record on Appeal,
Amended (District Court) 54

Designation of Contents of Record on Appeal,
Appellant's (Circuit Court of Appeals) 287

Designation of Contents of Record on Appeal,
Appellee's (Circuit Court of Appeals) 291

Designation of Contents of Record on Appeal
(District Court) 52

Findings of Fact and Conclusions of Law 39

(also see Pre-trial Certificate, page 36)

Judgment ~ 46

Names and Addresses of Attorneys of Record... 1

Notice of Appeal 48

Order Extending Time to File Record on Ap-
peal 55

Order on Pre-trial Rule 16 35

Pre-trial Certificate 36

Pre-trial Order „ .._ 35

Reply to Amended Counterclaim 32

Reply to Counterclaim 26

Statement of Points on Appeal 286

Stipulation re Exhibits 1 to 13 ..„ 294

Hagenbeck-Wallace Shows Co. iii

Index Page

Testimony 56

Exhibits for defendant:

1 — Agreement dated May 11, 1939
between Fanchon & Marco, Inc.,
and Glendale Post #127, Ltd 250

2 — Agreement dated May 4, 1939,
between Fanchon & Marco, Inc.
and Long Beach Pyramid No. 43,

A. E. O. S 255

3— Agreement dated May 27, 1939,
between Fanchon and Marco, Inc.
and Napa Post 113, American Le-
gion 255

4— Agreement dated May 29, 1939,
between Fanchon & Marco, Inc.
and American Legion Post #13 255

5 — Agreement dated May 19, 1939,
between Fanchon & Marco, Inc.
and Charles Roe Post #30 of the
American Legion 255

6— Agreement dated May 29, 1939,
between Fanchon and Marco, Inc.
and Oakland American Legion
Committee 256

7 — Agreement dated May , 1939,

between Fanchon & Marco, Inc.
and Santa Ana Lodge #794

B. P. 0. E 256

iv Fanchon & Marco, Inc., vs.

Index Page

Exhibits for defendant (Cont.) :

8— Agreement dated May 29, 3939,
between Fanchon & Marco, Inc.
and William J. Quinn 256

9 — Agreement dated May 16, 1939,
between Fanchon and Marco, Inc.
and Santa Monica Cities Post 123,
American Legion 256

10--Agreement dated May 18, 1939,
between Fanchon & Marco, Inc.
and Ventura Lodge #1430
B. P. O. E. Elks 256

11 — Agreement dated May 6, 1939,
between Fanchon & Marco, Inc.
and D. M. Price 257

12 — Agreement dated May 6, 1939,
between Fanchon & Marco, Inc.
and Inglewood Council of Parents
and Teachers 257

13— Agreement dated May 2, 1939,
between Fanchon & Marco, Inc.
and Bakersfield, California Lodge
No. 266 B. P. O. Elks _ - 257

14 — Telegram sent to various sponsors
from Fanchon & Marco, Inc. (May
31, 1939) 258

15 — Telegram from Ralph J. Claw-
son to John Singling North 163

Hagenbeck-Wallace Shows Co. v

Index Page

Exhibits for defendant (Cont.) :

16 — Statement of settlement made by

defendant with sponsors, etc 178

17 — Bills for repairs on railroad cars

from Santa Fe R. R. to defendant 194

Exhibits for plaintiff:

A-l — List of wagons - - 82

A-2— Letter dated June 28, 1939 to
Mr. Marco of Fanchon & Marco
from Paul Eagles 112

Witnesses for defendant:
Cunningham, Charles E.

—direct 238

— cross _ 240

Daillard, Wayne

— direct 172

Ducey, Ted

—direct 219

Guice, Walter S.

— direct 247

— cross 248

— recross 249

Hackett, Mrs. Patty

— direct 167

— cross ~ 170

Hall, Glenn

— direct .... 176

— cross „ 178

vi Fanchon & Marco, Inc., vs.

Index Page

Witnesses for defendant (Cont.) :

Kettring, R. V.

—direct - 190

— cross 218

Kline, Tiny

—direct 171

Kramer, Jack W.

—direct - 233

Priest, Charles H., Jr.

— direct 241

Wolff, Marco

— direct „ 163

— cross 166

Witnesses for plaintiff:

Austin, J. V.

—direct 223

— cross 230

Clawson, Ralph J.

—direct „ „ 136

— cross 158

Eagles, Paul

— direct 63

— cross 101

— redirect 108

— recross 113

— redirect 114

Hagenbeck-Wallace Shotvs Co. vii

Index Page

Witnesses for plaintiff (Cont.) :
Graham, Patrick

—direct 274

—cross 282

Nelson, Charles W.

— direct 114

Nelson, Charles W.

—direct 285

Pennock, Murray

—direct 259

— cross 264

Singleton, George

— direct _ 120

NAMES AND ADDRESSES OF ATTORNEYS

For Appellant:

MESSRS. MACFARLANE, SCHAEFER,

HAUN & MULFORD,
HENRY SCHAEFER, JR., Esq.,
JAMES H. ARTHUR, Esq.,
WILLIAM GAMBLE, Esq.,

1150 Subway Terminal Building,

Los Angeles, California.

For Appellee :

MESSRS. COMBS & MURPHINE,
LEE COMBS, Esq.,
THOMAS F. MURPHINE, Esq.,
JOHN F. REDDY, Esq.,

925 Pacific Southwest Building,

Los Angeles, California. [1*]

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

2 Fcmchon & Marco, Inc., vs.

In the United States District Court in and for the
Southern District of California, Central Division

No. 658— M Civil

HAGENBECK- WALLACE SHOWS COMPANY,

a Corporation,

Plaintiff,

'VS.

FANCHON & MARCO, INC., a Corporation,

Defendant.

COMPLAINT

For Damages for Breach of Contract
Comes now plaintiff and for cause of action com-
plains and alleges as follows :

I.

That plaintiff is a corporation duly organized and
existing under and by virtue of the laws of the State
of Indiana, authorized and licensed to do business
in the State of California; that defendant is a cor-
poration, duly organized and existing under and by
virtue of the laws of the State of California, auth-
orized and licensed to do business and doing busi-
ness in the County of Los Angeles, State of Cali-
fornia.

II.

That plaintiff is a corporation incorporated un-
der the laws of the State of Indiana and defendant
is a corporation incorporated under the laws of the
State of California ; that the matter in controversy

Hagenbeck-Wallace Shows Co. 3

herein exceeds, exclusive of interest and costs, the
sum of Three Thousand ($3000.00) Dollars.

III.

That on the 22nd day of May, 1939, plaintiff and
defendant entered into a written contract, the terms
of which are more particularly set forth in Exhibit
"A" attached hereto and made a part hereof as if
set forth verbatim herein. [2]1

IV.

That plaintiff has at all times done and performed
all of the stipulations, conditions and agreements
stated in said contract to be performed on its part
at the time and in the manner therein specified;
that in connection therewith on the 23rd day of
May, 1939 at its own expense, plaintiff delivered
from Baldwin Park, California, and turned over
to defendant all of the property described in Para-
graph 1 of Exhibit "A" attached hereto, in good
condition, ready for use, at the City of Inglewood,
State of California; that defendant at said time
accepted said property and thereafter commenced
the operation of "The Great American Circus"
throughout the State of California as in said con-
tract provided; that thereafter on or about May
31, 1939, defendant returned said property to the
grounds of plaintiff at Baldwin Park, California,
and refused to further continue operation of "The
Great American Circus"; that plaintiff made every
endeavor during the remainder of the term of said
contract, to let said property to others but was un-

4 Fanckon & Marco, Inc., vs.

able so to do; that plaintiff fed and cared for the
animals and equipment for a period of four (4)
weeks at a cost to plaintiff of Four Hundred
($400.00) Dollars per week or a total of Sixteen
Hundred ($1600.00) Dollars.

V.

That defendant has failed and refused and still
fails and refuses to perform said contract on its side,
and in particular in connection therewith has failed
and refused to pay in cash on delivery of said prop-
erty to defendant at Inglewood, California, the sum
of Twenty-five Hundred ($2500.00) Dollars, and
failed to deliver the four certain promissory notes
referred to in Paragraph V of said Exhibit "A"
attached hereto, at the time and place stated in said
contract as required for the delivery thereof, to-
wit, Inglewood, California, on the 23rd day of May,
1939. [3]

VI.

That by reason of the default of defendant in the
terms and conditions of the contract and agreement
by and between the parties hereto, plaintiff has been
damaged in the sum of $12,809.14 comprising the
sum of $2500.00 cash due and unpaid on the 23rd
day of May, 1939, together with interest thereon at
the rate of 7% from the 23rd day of May, 1939, to
and until the date of the filing of this suit, being the
sum of $2,569.02 ; the sum of $2500.00 due and pay-
able on the 31st day of May, 1939, together with in-
terest thereon at the rate of 7% to and until the
date of the filing of this suit, being the sum of $2,-

Hagenbeck-Wallace Shows Co. 5

565.13 ; the sum of $2500.00 due and payable on the
7th day of June, 1939, together with interest thereon
at the rate of 7% per annum to and until the date
of the filing of this suit, being the sum of $2,561.73 ;
the sum of $2500.00 due and payable on the 14th
day of June, 1939, together with interest thereon
at the rate of 7% to and until the date of the filing
of this suit, being the sum of $2,558.33 ; and the sum
of $2500.00 due and payable on the 21st day of June,
1939, together with interest thereon at the rate of
7% to and until the date of the filing of this suit,
being the sum of $2,554.93; and the sum of $66.00
paid by plaintiff herein for defendant for insur-
ance, as particularly provided under the terms and
conditions of paragraph 12 of Exhibit "A" attached
hereto.

VII.

That although repeated demand has been made
for the payment of the sums of money due plaintiff
under the terms and conditions of its contract with
defendant herein, as particularly set forth herein-
before, no part thereof has been paid and the whole
thereof is past due, owing and unpaid.

For a second, separate and distinct cause of ac-
tion, plaintiff herein complains and alleges as fol-
lows :

I.

Realleges and restates all the allegations con-
tained in [4] Paragraph I to VII inclusive of its
First Cause of Action, and makes the same a part
hereof as if set forth verbatim herein.

6 Fanchon & Marco, Inc., vs.

II.

That within two years last past, defendant was
indebted to the plaintiff in the sum of $15,475.14
for rentals due by defendant to plaintiff and for
monies advanced by plaintiff for and on behalf of
defendant; being so indebted, the defendant in con-
sideration thereof then and there promised the plain-
tiff to pay it the said sum of money on request.

III.

That the defendant although requested, has not
paid the same or any part thereof to the plaintiff,
but refuses to do so.

For a Third, separate and distinct cause of action,
plaintiff herein complains and alleges as follows:

I.

Realleges and restates all the allegations con-
tained in Paragraphs I to VII inclusive of its First
Cause of Action, and makes the same a part hereof
as if set forth verbatim herein.

II.

That within two years last past defendant was in-
debted to the plaintiff in the sum of $15,475.14 upon
an open book account, and being so indebted defend-
ant in consideration thereof then and there agreed
and promised plaintiff to pay it the said sum of
money on request.

III.

That defendant though requested, has not paid
the same or any part thereof to the plaintiff, but re-
fuses to do so.

Hagenbeck-W allace Shows Co. 7

Wherefore, plaintiff prays judgment against de-
fendant for the sum of $15,475.14, with interest as
allowed by law, for costs of suit, and for such fur-
ther relief as to the Court seems meet and just.

COMBS & MURPHINE,
By LEE COMBS,

Attorneys for Plaintiff. [5]

State of California,
County of Los Angeles — ss.

Lee Combs, being by me first duly sworn, deposes
and says: that he is one of the attorneys for plain-
tiff in the above entitled action; that he has read
the foregoing Complaint — for damages for breach
of contract and knows the contents thereof; and
that the same is true of his own knowledge, except
as to the matters which are therein stated upon his
information or belief, and as to those matters that
he believes it be true that the reason why said Com-
plaint is not verified by an officer of plaintiff cor-
poration is that its place of business is in the State
of Indiana and that none of its officers are now
within the County of Los Angeles, State of Califor-
nia, where affiant resides.

LEE COMBS.

Subscribed and sworn to before me this 10 day
of November, 1939.

(Seal) JESSIE WOODRUFF,

Notary Public in and for the County of Los An-
geles, State of California. [6]

8 Fanckon <& Marco, Inc., vs.

EXHIBIT "A"

Agreement made this 22 day of May, 1939 be-
tween The Hagenbeck- Wallace Shows Company, a
corporation organized and existing under the laws
of Indiana, hereinafter referred to as " Lessor' ' and
Fanchon & Marco, Inc., a corporation organized and
existing under the laws of California, hereinafter
referred to as " Lessee",

Witnesseth :

1. The Lessor hereby leases to the Lessee, and
the Lessee hereby hires from the Lessor the follow-
ing property:

One circus train consisting of seven flat cars,
two stock cars, two coaches and two sleepers;
big top seats, ring curbs; rails; chandeliers;
ticket boxes; one air caliope; blocks, falls and
cables; one public address system; cash regis-
ters; one concession department complete with
stands, counters, etc.; twenty circus wagons;
stake drivers, howdahs ; complete wardrobe for
animals and performers ; reserved seats for big
top including chairs and blue plank seats for
end sections; side show platforms; one 25 kilo-
watt light plant and booster on wagon; ten ele-
phants, twelve ponies, six dogs (collies), one
bucking mule, four camels, and one orangou-
tang, together with harness and trappings for
the animals,

all of which property is now stored and quartered
at Baldwin Park, California.

Hagenheck-Wallace Shows Co. 9

2. This lease is for a term of five weeks begin-
ning May 24, 1939, with an option to the Lessee to
renew the same at the end of said term of five weeks
for successive periods of one week each, but not to
extend beyond August 16, 1939, upon the same terms
and conditions as herein stated. Said option shall
be exercised by the Lessee by giving written notice
thereof, either by letter or telegram, addressed to
the Lessor, during the last week of said term of five
weeks and during each week thereafter.

3. The Lessor shall, at its own expense, deliver
all of the foregoing property, in good condition and
ready for use, to the Lessee at Inglewood, Califor-
nia, by May 23, 1939.

4. The said property shall be used by the Lessee
in connection with its operation of a circus under
the name of "The Great American Circus" and for
no other purpose. Such use thereof is hereby re-
stricted to the State of California and none of said
[7] property shall be removed from or used outside
of the State of California without the Lessor's writ-
ten consent thereto being first given.

5. The rental for said term of five weeks begin-
ning May 24, 1939 shall be $12,500 which shall be
paid as follows: $2,500 in cash on the delivery of
said property to the Lessee at Inglewood, Califor-
nia, and $10,000 by the delivery to the Lessor at the
same time of the Lessee's four promissory notes,
each for $2,500, the first of said four notes to be
payable May 31, 1939, the second note to be payable
June 7, 1939, the third note to be payable June 14,

10 Fanchon & Marco, Inc., vs.

1939, and the fourth note to be payable June 21,
1939. All of said notes shall be payable at the main
office of the Bank of America at Los Angeles, Cali-
fornia. In the event that the Lessee shall exercise
its option to renew this lease, the Lessee shall pay
to the Lessor each week for the use of said property
the sum of $2,500 in cash for each and every week
of such renewal, until the property shall have been
returned by the Lessee.

6. If default shall occur in the punctual payment
of any of said promissory notes, or in payment of
any other obligation of the Lessee hereunder, or in
the performance of any of the conditions herein on
the part of the Lessee to be performed, all of the
said promissory notes, without previous notice or
demand, shall, at the option of the Lessor, become
and be immediately due and payable, and the Lessor
shall have the right immediately to terminate this
lease, and thereupon said lease shall be at an end
as fully as if it had expired by limitation, and the
Lessor shall have the right to enter upon the prem-
ises where said property or any of it is stored or
kept and take possession thereof and of every part
thereof, by force or otherwise, without being liable
to prosecution or damages therefor, and shall have
the right to retain all payments and promissory
notes which up to that time may have been made and
delivered under any of the provisions of this agree-
ment. j[8J

7. The Lessor warrants that all of the said prop-
erty is free and clear of liens, encumbrances or valid
claims of ownership of any person or persons what-

Hagenbeck-Wallace Shows Go. 11

soever, and that it has full power and right to lease
the same.

8. ..Tho Lqdooq hao oxaminod the oaid proporty
4tnd tho Loqbop ■ makca no representation as tc ita-
condition' or fitness for the uqo thoroof ■ intondod' by
the Looacc. [WPD JP.]

9. All increase of animals by birth shall be and
remain the property of the Lessor.

10. The Lessee hereby assumes all risks in the
use and operation of the said property and will hold
the Lessor harmless from any and all claims arising
out of or by reason of the Lessee 's use and operation
of said property.

11. The Lessee shall take good care of all of said
property and shall provide all necessary veterinarian
services and medicines for the animals. At the ex-
piration of this lease the Lessee shall, at its own
expense, return and deliver to the Lessor, at Bald-
win Park, California, all of the said property, as
well as any increase thereof, in the same condition
in which it was delivered by the Lessor, reasonable
wear and tear excepted.

12. The Lessor agrees to procure a policy or
policies of insurance in the amount of $30,000 to
cover the said property against the risks of fire,
lightning, collision or derailment of railroad cars,
overturning of trucks or wagons and stranding,
sinking, burning or collision with another vessel
while on ferries or in cars on transfers in connec-
tion therewith, for a period of four months, and
the Lessee agrees to pay to the Lessor, upon de-
mand, the amount of the premium charged for such
insurance but not to exceed three hundred dollars.

12 Fanchon & Marco, Inc., vs.

In the event that the Lessee shall not use the prop-
erty hereby leased for said period of four months,
the Lessor shall, after the Lessee shall have returned
all of said property to the Lessor at Baldwin Park,
California, relinquish to the Lessee all [9] interest
in the said policy so that the Lessee may recover the
unearned premium thereon.

13. The Lessor and its agents shall at all times
have the right to enter upon any premises occupied
by the Lessee for the purpose of inspecting and ex-
amining the property hereby leased.

14. The Lessee shall not assign this agreement
or sublet the said property or any portion thereof.

15. Within one week from the date hereof, the
Lessee will, at its own expense, deliver to the Lessor
k bond of a surety company, satisfactory to the
Lessor, in the sum of $30,000 conditioned upon the
return by the Lessee to the Lessor, at the expira-
tion of this lease, of all of the property hereby
leased, as well as any increase thereof, in the same
condition in which it was delivered by the Lessor,
reasonable wear and tear excepted.

In Witness whereof, the parties have caused their
respective corporate seals to be affixed and these
presents to be executed by their respective corpo-
rate officers, the day and year first above written.
(Seal Affixed) THE HAGENBECK- WAL-

LACE SHOW COMPANY,
(Signed) By W. P. DUNN, JR.,

Sect'y & Treas.
(Seal Affixed) FANCHON & MARCO,

INC.,
(Signed) By J. A. PARTINGTON,

President. [10]

Hagenbeck-Wallace Shows Co. IS

State of New York,
County of New York,
City of New York — ss.

On the 22nd day of May, 1939, before me came
W. P. Dunn, Jr., to me known, who, being by me
duly sworn, did depose and say that he resides at
311 Gregory Ave., West Orange, N. J., that he is
Secy.-Treas. of The Hagenbeck-Wallace Shows
Company, the corporation described in, and which
executed, the foregoing instrument; that he knows
the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it
was affixed by order of the Board of Directors of
said corporation and that he signed his name thereto
by like order.

(Signed) SAMUEL SHAYON,

Notary Public.

Commission expires March 30, 1940.

State of New York,
County of New York,
City of New York — ss.

On the 22nd day of May, 1939, before me Jack A.
Partington, to me known, who, being by me duly
sworn, did depose and say that he resides at 400
Park Ave., N. Y., that he is the President of Fan-
chon & Marco, Inc., the corporation described in,
and which executed, the foregoing instrument; that
he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Di-

14 Fanchon & Marco, Inc., vs.

rectors of said corporation, and that he signed his
name thereto by like order.

(Signed) SAMUEL SHAYON,

Notary Public.
Commission expires March 30, 1940.
[Endorsed] : Piled Nov. 10, 1939. [11]

[Title of District Court and Cause.]

ANSWER

In defense of plaintiff's claim (designated causes
of action in plaintiff's complaint), defendant al-
leges :

First Defense

The complaint fails to state a claim against de-
fendant upon which relief can be granted.

Second Defense
Defendant admits the allegations contained in
paragraphs I, II, and III; and denies each and
every other allegation in the complaint, except that
in paragraph I of plaintiff's Second and Third
Claim, defendant admits the paragraphs realleged
from plaintiff's First Claim which defendant here-
tofore admitted.

Third Defense
I.
That the consent of this defendant to the making,
entering into and execution of that certain agree-
ment referred to in the complaint dated the 22nd

Hagenbeck-Wallace Shows Co. 15

day of May, 1939, a copy of which is attached to the
complaint marked " Exhibit A", was not free, and
the apparent consent of this defendant thereto was
obtained through and by means of actual fraud on
the part of said plaintiff.

II.

That the actual fraud on the part of said plain-
tiff by [12] which the apparent consent of this de-
fendant to said contract was obtained, consisted in
the following acts committed by the plaintiff with
intent to deceive this defendant, and to induce it to
enter into said contract, to-wit :

(a) That said plaintiff knowing that defendant
intended to use immediately all of the equipment
described in said contract for and in connection with
the operation of a circus, under the name of the
Great American Circus, and knowing that the de-
fendant had entered into certain written contracts
with various parties for the performance of said
circus in various places, suppressed from the de-
fendant information or knowledge that said equip-
ment was not in good condition and ready for use
for the purpose for which intended as aforesaid,
and that certain of said equipment was not avail-
able for delivery to the defendant, and that other
portions were incomplete, the said plaintiff did then
and there have knowledge or belief of the fact that
said equipment was not in good condition and ready
for use, and some of which was not available for
delivery and some of which was incomplete, and

If F miction & Marco, Inc., vs.

(b) Said plaintiff in said contract promised and
agreed

"The Lessor shall, at its own expense, deliver
all of the foregoing property, in good condition
and ready for use, to the Lessee at Inglewood,
California, by May 23, 1939."

and said promise was so made by the plaintiff with-
out any intention of performing it.

III.

That the actual fraud on the part of plaintiff, as
herein alleged, was perpetrated by said plaintiff
with the intent and for the purpose of deceiving
this defendant, and of inducing this defendant to
enter into the said contract and transactions. That
the defendant relied upon the acts and fraudulent
misrepresentations of the plaintiff herein alleged,
and in reliance thereon consented to and entered into
and executed the said contract. That the said [13]
equipment was not in fact in good condition and
ready for use, but was defective, badly in need of
repair and reconditioning, and was deficient, and
certain parts thereof were missing, and other parts
were incomplete, in the following particulars:

15 wagons were in need of complete overhaul-
ing, having flat wheels, bad wheel boxings, bent
axles and many wagons were without brakes,
making operation extremely difficult and dan-
gerous ;

Tent rigging, blocks, falls, chairs, all unsafe
and constituting a great hazard to the public
and employees;

Hagenbeck-Wallace Shows Co. 17

Train flat decks and runs in unusable con-
dition ;

The calliope broken down and entirely unfit
for use;

The elephant howdahs, either not in plain-
tiff's possession or unfit for use and conse-
quently never delivered ;

"Wardrobe incomplete, and that which was
delivered in bad condition and much of it un-
usable ;

Sleeping cars without blankets, sheets, berth
curtains or pillow cases.

That had the defendant known of the defective
character of said equipment, and that much of said
equipment was incomplete and large portions en-
tirely missing, as herein alleged, it would not have
entered into said contract.

IV.

That on or about the 31st day of May, 1939, and
after this defendant had obtained possession of part
of the equipment described in said contract, and at-
tempted to use the same, this defendant for the first
time learned and discovered the permanent defec-
tive character of certain equipment and of its need
of repair and reconditioning, as herein set forth,
and did thereupon redeliver all of said equipment
to the plaintiff and gave written notice to the plain-
tiff of its rescission of said contract, a copy of which
written notice of rescission is attached hereto
marked " Exhibit A", and made a part hereof. [14]

18 Fanchon & Marco, Inc., vs.

Fourth Defense
I.
That after the making and execution of the con-
tract referred to in plaintiff's complaint, a copy of
which is attached thereto, marked " Exhibit A" and
made a part thereof, the consideration for the ob-
ligation of this defendant under said contract failed
in whole or in part through the fault of the plain-
tiff.

II.
That the failure of consideration for the obliga-
tion of this defendant consisted in the following:

That under the terms of said contract the plain-
tiff, designated therein as Lessor, covenanted and
agreed as follows:

"The Lessor shall, at its own expense, deliver
all of the foregoing property, in good condition
and ready for use, to the Lessee at Inglewood,
California, by May 23, 1939.' '

That said plaintiff knew at the time of the execu-
tion of said contract that defendant contemplated
the immediate use of said equipment for the pur-
pose of the conduct and operation of a circus, un-
der the name of the Great American Circus, and
that it had obligated itself by written contract with
various sponsors to immediately produce the cir-
cus. That the said plaintiff did not deliver all of
the said equipment, described in said contract with
this defendant, and that which was delivered was
not in good condition and ready for use by May 23,
1939, in that the said equipment was defective, badly

Hagenbech-Wallace Shows Co. IS

in need of repair and reconditioning, and in par-
ticular the following deficiencies existed :

15 wagons were in need of complete over-
hauling, having flat wheels, bad wheel boxings,
bent axles and many wagons were without
brakes, making operation extremely difficult
and dangerous;

Tent rigging, blocks, falls, chairs, all unsafe
and constituting a great hazard to the public
and employees;

Train flat decks and runs in unusable con-
dition; [15]

The calliope broken down and entirely unfit
for use ;

The elephant howdahs, either not in plain-
tiff's possession or unfit for use and conse-
quently never delivered;

Wardrobe incomplete, and that which was de-
livered in bad condition and much of it unus-
able;

Sleeping cars without blankets, sheets, berth
curtains or pillow cases.

III.

That shortly after taking possession of said equip-
ment, the defendant for the first time ascertained
the defective character of the equipment and the
fact that it was not in good condition and ready
for use, in the particulars hereinabove set forth,
and that certain of said equipment was missing,
and did thereupon on or about May 31, 1939, rede-

20 Fcmchon & Marco, Inc., vs.

liver all of said equipment to the plaintiff and gave
to the plaintiff written notice of its rescission of
said contract of May 22, 1939, a copy of said writ-
ten notice of rescission being hereto attached,
marked " Exhibit A", and made a part hereof.

IV.

That the failure of consideration for the obliga-
tion of this defendant was occasioned wholly by and
through the fault of the plaintiff, and plaintiff could
have prevented said failure of consideration by dili-
gently correcting the defects in said equipment, re-
pairing and reconditioning the same and placing it
in good condition and ready for use, and by supply-
ing such equipment as was missing.

Fifth Defense

I.

That at the time of the making and execution of
the contract referred to in plaintiff's complaint, a
copy of which is attached thereto marked " Exhibit
A", defendant informed plaintiff that it proposed
to use the equipment described in said contract in
the immediate production of a circus, under the
name of the [16] Great American Circus, and that
it had made contracts and proposed to make ad-
ditional contracts with sponsors on whose behalf
it would produce such circuses, and that the same
would be used for such purposes during the period
of said contract, and that such hiring of said equip-
ment under the terms of said contract was for such
purposes.

Hagenbeck-Wallace Shows Co. 21

II.

That the said plaintiff failed and refused to put
the equipment, described in said contract, in a con-
dition fit for the purpose for which it was let by
plaintiff to defendant, and in particular failed to
correct defects, and items requiring repair in the
following particulars :

15 wagons were in need of complete overhaul-
ing, having flat wheels, bad wheel boxings, bent
axles and many wagons were without brakes,
making operation extremely difficult and dan-
gerous ;

Tent rigging, blocks, falls, chairs, all unsafe
and constituting a great hazard to the public
and employees;

Train flat decks and runs in unusable condi-
tion;

The calliope broken down and entirely unfit
for use;

The elephant howdahs, either not in plain-
tiff's possession or unfit for use and conse-
quently never delivered ;

Wardrobe incomplete, and that which was
delivered in bad condition and much of it un-
usable ;

Sleeping cars without blankets, sheets, berth
curtains or pillow cases.

III.

That the defects and deteriorations herein de-
scribed were not occasioned by the fault of this de-

22 Fanchon & Marco, Inc., vs.

fendant, and were not the result of the natural use
by this defendant, but said defects existed at the
time of the delivery of said equipment by the plan-
tiff to the defendant. [17]

COUNTERCLAIM

I.

That plaintiff and defendant entered into a writ-
ten contract, a copy of which is attached to plain-
tiff's complaint and marked " Exhibit A". That by
the terms of said contract, defendant agreed to
lease from plaintiff for an agreed rent, certain
equipment which was to be used by the defendant
for the express purpose of conducting a circus. That
the plaintiff agreed to deliver said equipment to de-
fendant in good condition and ready for use.

II.

That plaintiff failed and refused to comply with
the terms of said agreement in that the said equip-
ment was not in good condition, but was wholly in-
adequate for the purpose intended to be made
thereof by the defendant as contemplated by the
contract, and that the plaintiff failed and refused to
deliver all of the equipment as specified in said
contract.

III.

That because of the failure of the plaintiff to
comply with the covenants contained in said con-

Hagenbeck-Wallace Shows Co. 23

tract, the defendant was unable to operate the circus
as contemplated by the parties. That the equipment
was in such a dangerous condition that it was
hazardous for the employees to use said equipment,
and to the members of the public who were in at-
tendance upon performances wherein the said equip-
ment was used. That because of such deficiencies
and because of the condition of the equipment it be-
came necessary for defendant to discontinue the
operation of the circus, whereupon defendant re-
delivered all of said equipment theretofore delivered
to it to the plaintiff ; and defendant was, therefore,
wholly deprived of any use or benefit from the sub-
ject matter of said contract and was prevented from
complying with its terms.

IV.

That in reliance upon plaintiff's performance and
with [18] the knowledge of plaintiff, defendant
entered into certain written contracts with third
parties wherein defendant agreed to produce a
circus which was to be sponsored by said third
parties. That because of plaintiff's breach as afore-
said, defendant was prevented from performing said
contracts and became liable in damages to said third
parties in amounts as yet not fully ascertained. That
when said amount of damages are ascertained, de-
fendant will respectfully ask leave of court to
amend it's counterclaim to insert the same.

24 Fanchon & Marco, Inc., vs.

VI.

That due to the condition of the equipment as
aforesaid, it was necessary for defendant to expend
the sum of Two Thousand Five Hundred Dollars
($2,500.00) for repairs and replacements of missing
articles which plaintiff agreed to furnish. That all
of the repairs made by defendant were not at-
tributable to ordinary wear and tear, but were made
in an attempt to put said equipment in a good and
usable condition.

VII.

That by reason of plaintiff's breach in failing and
refusing to comply with the terms of the agreement
as aforesaid, defendant has been damaged to the ex-
tent of Fifty Thousand Dollars ($50,000.00) as loss
of profits from the operation and use of the equip-
ment as agreed to be furnished by plaintiff.

Wherefore, defendant demands:

1. That plaintiff be awarded no relief under its
complaint ;

2. That defendant have judgment in the sum of
Fifty-Two Thousand Five Hundred Dollars ($52,-
500.00), and such further damages as may be
ascertained ;

3. It's costs in said action.

MacFARLANE, SCHAEFER,
HAUN & MULFORD
By HENRY SCHAEFER, JR., and
JAMES H. ARTHUR, and
WILLIAM GAMBLE,
Attorneys for defendant. [19]'

Hagenbeck-Wallace Shows Co. 25

" EXHIBIT A"

NOTICE OF RESCISSION

To: Hagenbeck-Wallace Shows Company,
a corporation

You Will Please Take Notice that the under-
signed, Fanchon & Marco, Inc., a corporation,
hereby rescinds and terminates that certain agree-
ment of lease entered into between the said under-
signed and you on the 22nd day of May, 1939,
wherein and whereby certain circus equipment
therein described was purportedly leased to the
undersigned by you.

This rescission is made on the ground that the
consideration for this obligation has failed in a ma-
terial respect, and particularly because the equip-
ment set forth in said lease agreement was not at
the time of the delivery of said equipment to the
Lessee, or now, in proper form or order to use in
the manner for which it was intended to be used,
and such use up to date has been had only by the
expenditure of large sums of money by the Lessee ;
said defects being as follows:

15 wagons being in need of complete overhauling,
having flat wheels, bad wheel boxings, bent axles and
many wagons without brakes, thus making opera-
tion extremely difficult and dangerous;

Tent rigging, blocks, falls, chairs, all unsafe and
constituting a great hazard to the public;

Train flat decks and runs in unusable condition;

In addition the Calliope does not operate;

Elephant howdahs never delivered ;

26 Fanchon & Marco, Inc., vs.

Wardrobe incomplete, and that which was de-
livered was in bad condition;

Sleeping cars without blankets, sheets, berth cur-
tains or pillow cases.

These items and others have caused delays, re-
sulting in losses estimated to be $6000.00, and in re-
pairs spent to date in excess of $2000.00, and caus-
ing the Lessee to become liable to suits for unful-
filled contracts.

The Lessee herewith tenders and returns to you
all the equipment that it has procured delivered at
your premises.

Yours truly,
FANCHON & MARCO, INC.
By J. A. PARTINGTON

President

[Endorsed]: Piled Dec. 7, 1939. [20]

[Title of District Court and Cause.]

REPLY TO COUNTERCLAIM

Plaintiff for its reply to the counterclaim con-
tained in defendant's Answer to the Complaint
herein, says:

First Defense

I.

Plaintiff admits the allegations contained in
Paragraph I of defendant's counterclaim.

Hagenbeck-Wallace Shows Co. 27

II.

That plaintiff has no knowledge or information
sufficient to form a belief concerning the allegation
contained in Paragraphs IV and VI of defendant's
counterclaim.

III.

Plaintiff denies each and every allegation con-
tained in Paragraphs II and III and VII of de-
fendant's counterclaim, except that in Paragraph
III of defendant's counterclaim plaintiff admits
that said equipment was redelivered to plaintiff
herein on or about the 31st day of May, 1939.

Second Defense

I.

That said counterclaim fails to state facts suf-
ficient to constitute a counterclaim against plaintiff
upon which relief can be granted. [21]

Third Defense

I.

That defendant is estopped from maintaining this
counterclaim by reason of its conduct in itself being
in default upon a dependent and concurrent obliga-
tion, in that defendant failed and refused to make
payment of $2500.00 upon delivery of said equip-
ment as provided for in the contract, and further
failed and refused to deliver any of the notes as in
said contract provided.

28 Fcmchon & Marco, Inc., vs.

Fourth Defense

I.

That defendant is estopped from maintaining this
counterclaim for damages for repair by reason of
its conduct in not giving plaintiff such notice as re-
quired by Section 1957 of the Civil Code of Cali-
fornia.

Fifth Defense

I.

That defendant is estopped from maintaining this
counterclaim for damages for breach of said con-
tract by reason of its conduct in rescinding and ter-
minating said contract in writing, as set out in the
Third Defense of defendant's Answer as Ex-
hibit "A", on file herein.

Wherefore, plaintiff demands that defendant be
awarded no relief under its counterclaim and
that plaintiff have judgment as prayed for in its
complaint.

COMBS & MURPHINE
By THOS. F. MURPHINE,

Attorneys for plaintiff.

[Endorsed] : Filed Dec. 19, 1939. [22]

[Title of District Court and Cause.]

AMENDED COUNTERCLAIM

Now comes the defendant, Fanchon & Marco, Inc.,
and by leave of Court first had, files this its
Amended Counterclaim, and alleges as follows :

Hagenbeck-Wallace Shows Co. 29

I.

That plaintiff and defendant entered into a
written contract, a copy of which is attached to
plaintiff's complaint and marked " Exhibit A".
That by the terms of said contract, defendant agreed
to lease from plaintiff for an agreed rent, certain
equipment which was to be used by the defendant
for the express purpose of conducting a circus. That
the plaintiff agreed to deliver said equipment to
defendant in good condition and ready for use.

II.

That plaintiff failed and refused to comply with
the terms of said agreement in that the said equip-
ment was not in good condition, but was wholly in-
adequate for the purpose intended to be made
thereof by the defendant as contemplated by the
contract, and that the plaintiff failed and refused
to deliver all of the equipment as specified in said
contract.

III.

That because of the failure of the plaintiff to com-
ply with the covenants contained in said contract,
the defendant was [23] unable to operate the circus
as contemplated by the parties. That the equipment
was in such a dangerous condition that it was
hazardous for the employees to use said equipment,
and to the members of the public who were in at-
tendance upon performances wherein the said equip-
ment was used. That because of such deficiencies and
because of the condition of the equipment it became

30 Fanchon & Marco, Inc., vs.

necessary for defendant to discontinue the opera-
tion of the circus, whereupon defendant redelivered
all of said equipment theretofore delivered to it to
the plaintiff; and defendant was, therefore, wholly
deprived of any use or benefit from the subject
matter of said contract and was prevented from
complying with its terms.

IV.

That in reliance upon plaintiff's performance and
with the knowledge of plaintiff, defendant entered
into certain written contracts with third parties
wherein defendant agreed to produce a circus which
was to be sponsored by said third parties. That be-
cause of plaintiff's breach as aforesaid, defendant
was prevented from performing said contracts and
became liable in damages to said third parties in
amounts as yet not fully ascertained. That when
said amount of damages are ascertained, defendant
will respectfully ask leave of court to amend it's
counterclaim to insert the same.

V.

That immediately upon discovering that the equip-
ment furnished by the plaintiff was not in good con-
dition and ready for use in compliance with the
terms of the contract between the plaintiff and de-
fendant, the defendant notified the plaintiff that
said equipment was not in good condition and ready
for use and specified the particulars wherein said
deficiencies and need of repairs in said equipment

Hagenbeck-Wallace Shows Co. 31

existed. That thereupon the defendant was informed
by the plaintiff, through its agents, that the defend-
ant should assume to make such repairs and addi-
tions as were necessary to restore the equipment in
such a condition as to comply with the [24] terms
of the contract. That thereupon this defendant pro-
ceeded to make necessary repairs and additions to
said equipment and expended therefor the sum of
Two Thousand Five Hundred Dollars ($2,500.00).
That although defendant expended the sum as afore-
said, it was impossible for this defendant to restore
the equipment in a condition suitable for use for the
purpose for which it was intended, and that it was
necessary in consequence that defendant return said
equipment and rescind the contract as hereinbefore
alleged.

VI.
That by reason of plaintiff's breach in failing and
refusing to comply with the terms of the agreement
as aforesaid, defendant has been damaged to the
extent of Fifty Thousand Dollars ($50,000.00) as
loss of profits from the operation and use of the
equipment as agreed to be furnished by plaintiff.

Wherefore, defendant demands :

1. That plaintiff be awarded no relief under its
complaint ;

2. That defendant have judgment in the sum of
Fifty-Two Thousand Five Hundred Dollars ($52,-
500.00), and such further damages as may be ascer-
tained ;

32 Fanchon & Marco, Inc., vs.

3. It's costs in said action.

MacFARLANE, SCHAEFER,
HAUN & MULFORD
By HENRY SCHAEFER, JR. and
JAMES H. ARTHUR and
WILLIAM GAMBLE,
Attorneys for defendant.

[Endorsed]: Filed Nov. 23, 1940. [25]'

[Title of District Court and Cause.]

REPLY TO AMENDED COUNTERCLAIM

Plaintiff for its reply to the amended counter-
claim contained in defendant's amended counter-
claim on file herein, says:

First Defense

I.

Plaintiff admits each and several the allegations
contained in Paragraph I of the amended counter-
claim.

II.

Denies each and several all the allegations con-
tained in Paragraphs II, III and IV of said
amended counterclaim, excepting that this plaintiff
admits that defendant deposited and left at Baldwin
Park, California, on or about June 1st, 1939, all of
the equipment referred to in Exhibit "A" attached
to plaintiff's complaint on file herein.

Hageribeck-WaUace Shows Co. 33

III.
Answering Paragraph V, this plaintiff admits
that certain minor repairs were made by plaintiff
on said equipment; admits that certain minor re-
pairs were made by defendant on said equipment
with the understanding that plaintiff reimburse for
same; alleges that all of said repairs were of a
minor nature ; deny each and several all the remain-
ing allegations in said Paragraph V contained.

IV.

Denies each and several all the allegations con-
tained in Paragraph VI of said amended counter-
claim. [26]

Second Defense

I.

That said amended counterclaim fails to state
facts sufficient to constitute a counterclaim against
plaintiff upon which relief can be granted.

Third Defense

I.

That defendant is estopped from maintaining this
counterclaim by reason of its conduct in itself being
in default upon a dependent and concurrent obliga-
tion, in that defendant failed and refused to make
payment of $2500.00 upon delivery of said equip-
ment as provided for in the contract, and further
failed and refused to deliver any of the notes as in
said contract provided.

34 Fanchon & Marco, Inc., vs.

Fourth Defense

I.

That defendant is estopped from maintaining this
amended counterclaim for damages for repair by
reason of its conduct in not giving plaintiff such
notice as required by Section 1957 of the Civil Code
of California.

Fifth Defense

I.

That defendant is estopped from maintaining this
amended counterclaim for damages for breach of
said contract by reason of its conduct in rescinding
and terminating said contract in writing, as set out
in the Third Defense of defendant's Answer as Ex-
hibit "A" on file herein.

Sixth Defense

I.

That upon the facts as alleged in said amended
counterclaim, defendant is not entitled to recover
$50,000.00 or any sum whatsoever as loss of profits
from the operation and use of the equipment re-
ferred to, or otherwise, in connection with the con-
tract referred [27] to herein or at all, by reason of
its attempting to stand upon a rescission of the con-
tract in this case, and that said defendant cannot
recover both on rescission and on breach of contract.

Seventh Defense

I.

That the equipment referred to in the contract
set forth in plaintiff's complaint in this action was

Hagenheck-Wallace Shows Co. 35

selected, inspected and examined by defendant itself
before execution of the contract referred to herein
and the specific items referred to in said contract
were all known to and examined by defendant be-
fore execution of the contract, and that said equip-
ment was accepted in the condition, quantities,
amounts and description prior to its delivery at
Inglewood, May 23, 1939.

Wherefore, plaintiff demands that defendant be
awarded no relief under its Amended Counterclaim,
and that plaintiff have judgment as prayed for in
its complaint.

COMBS & MURPHINE
By LEE COMBS

Attorneys for plaintiff.

[Endorsed] : Filed Nov. 27, 1940. [28]

[Title of District Court and Cause.]

ORDER ON PRETRIAL RULE No. 16.

Pursuant to citation for Pretrial under Rule 16,
Lee Combs, Esq., attorney for the plaintiff Haden-
beck- Wallace Show Company, and Henry Schaefer,
Esq., attorney for the defendant Fanchon & Marco,
appeared in the chambers of this Court on this 14th
day of November, 1940, at 10:30 a. m.

The Pretrial conference was opened by the under-
signed Judge, and after discussion of the pleadings
and the issues, it was stipulated by the attorneys,
that the contract attached as Exhibit "A" to the

36 Fcmchon & Marco, Inc., vs.

plaintiff's complaint was executed; there was sharp
differences between the attorneys, as to the delivery
of the property enumeratd in the contract, and of
the condition of the wagons, tent rigging, blocks,
falls, chairs, or any of the other property including
animals, wardrobes, sleeping cars, etc.; and after
discussion between counsel and the Court, it was
suggested by the Court, that this was one of the
cases where it appeared the attorneys and their re-
spective clients could compromise and settle the dif-
ference, composing the issue in this case, in a more
satisfactory way than could the Court, and sug-
gested to the attorneys that they undertake such
conference with a view of reaching an amicable
settlement. The attorneys expressed a willingness to
undertake a compromise and settlement, and there-
upon a further hearing was continued until the 18th
day of November, 1940, at 10 o'clock a. m. at the
Court's chambers for further Pretrial conference.

Dated this 14th day of November, 1940.

JEREMIAH NETERER,

U. S. District Judge.

[Endorsed] : Filed Nov. 15, 1940. [29]

[Title of District Court and Cause.]
CERTIFICATE OF PRETRIAL HEARING
UNDER RULE No. 16

Pursuant to adjournment of Pretrial herein on
the 14th day of November, 1940, appeared Thomas

Hagenbeck-Wallace Shows Co. 37

Murphine, Esq., and Lee Combs, Esq., attorneys for
the plaintiff Hagenbeck-Wallace Shows Company, a
corporation, and Henry Schaefer, Esq., Attorney
for the defendant Fanchon & Marco, Inc., a corpo-
ration.

On opening of the conference the attorneys for
the respective parties announced that they could not
arrive at a compromise agreement, It was thereupon
stipulated that the plaintiff is a corporation organ-
ized under the laws of the state of Indiana and li-
censed to do business in the State of California ; that
defendant is organized under the laws of the state
of California and licensed to do business in said
state ; that the matter in controversy is in excess ex-
clusive of interest and costs the sum of $3000.00;
that on the 22nd day of May, 1939, plaintiff and de-
fendant entered into a written contract, the terms
of which is set forth in Exhibit "A" attached to
plaintiff's complaint; that on the 23rd day of May,
1939, the plaintiff delivered to the defendant prop-
erties described in said contract; that on the 31st
day of May, 1939; the defendant returned said
property to the plaintiff and a copy of the notice of
remission attached to the answer was delivered to
plaintiff and the defendant refused to continue with
the operation of the Great American Circus; the
defendant admits that the $2500.00 cash payment-
provided by the contract was not paid, but contends
that said sum was expended in rehabilitation of the
equipment delivered. Defendants admits that in ad-
dition to the $2500.00 cash payment it agreed to give

88 Fanchon & Marco, Inc., vs.

to the defendant four notes of $2500.00 each to be
paid as alleged in the complaint together with in-
terest thereon as therein provided ; that demand has
been made for the payment of the said sums and de-
mand has been refused. It is agreed that the 2nd
and 3rd causes of action are predicated upon the
first and that failure of the first cause of action
would defect the 2nd and 3rd causes of action ; upon
this stipulation it is ordered that the [31]1 2nd and
3rd causes of action be dismissed. Exception is noted
to the plaintiff.

It is agreed that the open issue is the condition of
the equipment in that the 15 wagons had axefe that
were bent, and out of line, which caused them to
burn; that it delayed putting up of the tent and
caused the defendant to miss performance (i.e.) the
matinee in San Diego, and at Santa Ana and Pasa-
dena; the Pasadena engagement was on Memorial
Day. Delay at Pomona so that the mantmee could
not begin until 4 o'clock instead of 2 o'clock, which
in turn delayed the evening performance. The con-
dition of the rope and lines are an open issue; like-
wise the missing of the elephant howdahs.

It is admitted that the sponsors contracts were
executed by the person purporting to have executed
the same, being 13 in number marked Exhibits Nos.
1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and filed with the
Clerk; that the San Diego contract is in form the
same as Exhibit "3" and on the same terms. Ex-
hibits 3, 4, 6, 7 & 8 were executed subsequent to the
date of the delivery of the equipment at Inglewood;

Hagenbeck-Wallace Shows Co. 39

Exhibit "3" on May 27th, and the other four on
May 29th, 1939; that expense of maintaining the
animals was $400.00 a week; that the telegram sent
on May 31st, 1939, marked Exhibit #14 is a copy of
the telegram sent to the parties listed on Exhibit
#14 and filed with the Clerk.

The issue will be limited to the condition of the
equipment when delivered to the defendant and to
losses, if any, recoverable that were occasioned by
the deficiency of the equipment if any.

This statement to be read in evidence upon the
trial thereof.

Dated this 25th day of November, 1940.
JEREMIAH NETERER,

U. S. District Judge.

[Endorsed] : Filed Nov. 25, 1940. [32]

[Title of District Court and Cause.]

REPORTER'S TRANSCRIPT OF ORAL
FINDINGS OF THE COURT. [33]

Los Angeles, California,

Friday, November 29, 1940, 1:45 P.M.

The Court: The court adopts the certificate of
facts filed in the pre-trial order as a part of the
court's findings. The court further finds that, be-
fore executing the contract in issue, Clawson, the
caretaker of plaintiff's circus at winter quarters
at Baldwin Park, saw Nelson and one or two other

40 Fanchon dt Marco, Inc., vs,

persons as well, and told them that the plaintiff
would like to let some or all of its circus. Nelson
took the matter up with the defendant, and there-
after, on the 22nd day of May, the contract was
executed in New York by defendant's sponsor and
the plaintiff pursuant thereto. The property de-
scribed in the complaint of plaintiff is set forth in
the contract attached thereto, by which the use
of the property was leased to the defendant for the
period of five weeks, at a rental of $2500' per week.
This property had been used in the show busi-
ness, some of it for a number of years. The ropes
had been used for one or two years, perhaps two
years. The defendant is familiar with the show
business, and had been in such business for some
time. He knew about the ropes, and must have
known how long those ropes would likely continue
in use. The defendant had in its employ a practi-
cal staff of efficient showmen, who had been engaged
in the show business, some for many years. Some
had been [34] employed by the defendant. Eagles
and Nelson and Daillard were the defendant's spe-
cial representatives in selecting, or at least looking
over the property and paraphernalia for the de-
fendant's use and the properties of the plaintiff
at the winter quarters in Baldwin Park. From
about 48 wagons, 15 wagons were finally selected.
All of the property that was delivered and accepted
at Inglewood was in good, usable condition. Some
of it was in need of some repairs, which the de-
fendant had made and charged to the plaintiff's

Hagenbeck-Wallace Shows Co. 41

account, to be deducted from the first payment due
the plaintiff. The railroad cars needed repairs to
bring them within the Interstate Commerce re-
quirements. These repairs were made to the cars,
and after reconditioning, the cars were delivered
at Inglewood. Nelson said all of the property named
in the complaint was delivered except the how-
dahs. Nelson, who wtls in the defendant's employ,
said they did not need the howdahs then, but
knew where they were, and when needed he would
get them, and that he, Nelson, wTas advised where
they were and could receive them when he needed
them. Eagles likewise was present at the receipt
of this property, and he said they did not need
them, and, if needed, knew where to get them.

All of the property was viewed by the defendant,
through its agents. Everything was open and ob-
vious. Nothing was concealed from them. The sleep-
ing cars were old. They [35] had slat beds. There
were no springs on the beds. Some of the pillows
and sheets were gone. No blankets were furnished,
but these were afterward purchased by defendant
and charged to the plaintiff. These cars were not
modern in any sense of the word, but their condi-
tion wras fully exposed and known by the defend-
ant, and the defendant saw the condition that the
cars were in. A suggestion was made with relation
to painting the cars, and the cars were painted, at
plaintiff's cost. Something was said about the cal-
liope. The calliope was delivered at Inglewood, but
in unloading there is some testimony that it was

42 Fanchon & Marco, Inc., vs.

turned over, and it was afterwards removed to
some other place by the defendant. There is no
evidence that the calliope was impaired when it
wras delivered at Inglewood.

Something was said about the runways. The run-
ways were in good condition. At one place where
an exhibition was made one of the wagons did
overturn. The testimony is that the runways should
have been, or usually are, of steel, now. It is not
material what the runways are, if they are safe.
This runway was safe if it wras supported by the
under-support. There is no testimony that this run-
way was placed in the situation which its construc-
tion required. If the supports had been placed un-
der it, it perhaps would not have broken, but if the
runway was sufficient, with the support under it,
then no complaint could be made.

The wagons in this case are shown to have been
heavily [36] loaded, but that is neither here nor
there. It is not shown that the heavy loading had
anything to do with it, except that the wagon did
overturn. I do not find from the evidence that that
was due to the runway.

The defendant was advised by Austin, who was
in its employ in a responsible position, and wTho was
an old showman, that it would require at least a
week or two weeks, I think perhaps he said two
or three weeks, but a week or two weeks before the
show would move smoothly and at all satisfactorily.

The ropes were examined by the defendant's rep-
resentatives. A coil of 1500 feet wras bought at In-

Hagenheck-Wallace Shotvs Co. 43

glewood by defendant on plaintiff's account. The
defendant knew the time the ropes had been used.
There is no evidence as to what use they had been
placed to or what elements they had been exposed
to, nor the continuous use to which they had been
adopted. But all this was known to the defendant
at the time.

The rope used at Pasadena broke. This was oc-
casioned by the rope catching in the block fall, and
when the tent was sought to be raised, they tried
to raise it by elephant power, and when it faulted
and the elephant pulled, the rope broke. This rope
was then spliced, and was used in raising the tent.

No part of the broken rope is produced in court
as evidence, nor is its absence explained. There is
testimony [37] that the weakness in the rope was
dry rot, but little weight can be attached to those
statements, because a rope so afflicted could not be
detected by a person merely looking at it, as the
testimony shows these witnesses did. They had no
special knowledge with relation to it. And the wit-
ness who spliced the rope testified in this case, but
he did not say anything about any dry rot or any
appearance at the broken place of the rope of any
unusual condition. The non-production of that, of
course, would indicate the contrary idea to the dry
rot.

At the time of the breaking of the rope the man
who was in charge of that department was an old
showman. He was working in his line of business
in making this exhibition. If that had broken be-
cause of dry rot, he would have discovered it, and

44 Fanchon & Marco, Inc., vs.

he would have reported it to the defendant, and a
part of the rope, or the broken part, would have
been saved as a matter of protection to the de-
fendant. But this was not done.

At Santa Ana the distance from the station to the
showgrounds wras three and a half miles. The wag-
ons were drawn by gas motor power. In moving the
wagons from the railroad yards to the grounds the
spindle on the hub of one of the wheels became
heated. These wagons had been exhibited at Ingle-
wood and San Diego, and there is no evidence that
they had been greased or oiled at any time since
the delivery of the wagons. The wagons were like-
wise, [38] I will not say overloaded, but they were
loaded beyond the normal capacity that they usually
bore. Heat in a spindle, it is common knowledge,
is caused by friction, and a dry spindle will readily
heat, but if greased or oiled the friction is elimi-
nated, and heat will not be created.

Upon the organization of the show the defendant
employed a staff of efficient showmen as heads of
the several departments. The helpers, however, were
not experienced men. They were what were known
as green men at the work. They were unfamiliar
with the business. And changes were made con-
stantly by persons being in the employ leaving it
and by taking on new men.

At Santa Ana the defendant was approached by
a union labor organizer and asked to sign a closed
shop contract. He did not do so, but this was post-
poned, and the request was renewed at Pasadena,
but it was not signed. The organizer said that if it

Hagenbeck-W allace Shows Co. 45

was not signed in Pomona the show could not open
at San Francisco, as he would call a strike, call
out the men, that the defendant would not be per-
mitted to show in San Francisco, where it was
scheduled to be within a few days. The contract
was not signed, and the show was closed.

The defendant then returned the property to the
place where it had been received and gave notice
of rescission of the contract. [39]

The defendant, during the week's performance
or operation of the show, had a net loss of $23,-
323.93.

The conclusion from these facts: When the de-
fendant accepted the property, after examination
and after exposition of the property to him, with-
out discovering any fault of any sort or fashion,
and assumed to make reconditioning for such needed
repairs as were apparent, and charged it to the
plaintiff's account with the plaintiff's consent, he
waived such reconditioning as is shown to have been
necessary and to have been made, and may not,
after operating the show for a week at a loss, as is
shown, and when threatened with a closed shop
by the labor unions at Pomona,, and then closing
the circus, and by his telegram, as is shown by the
evidence, saying that the show will close because
of labor conditions, the court cannot now say that
he has been unfairly dealt with, and the findings
and judgment will be in favor of the plaintiff, and
it will recover the amount claimed in the complaint
except $400 for each week for four weeks animal
food and except the defendant should be and will

46 Fanchon & Marco, Inc., vs.

be given credit for all of the sums which it ex-
pended upon rehabilitating any part of this show.
Prom this exhibit which is in the case there should
be eliminated the rental of stake driver, and gar-
bage cans and hammer, the truck hire to Ted
Ducey, dining car equipment, blacksmith equip-
ment, the 120 yards of burlap, and an item of tools,
being the next to the last item in this exhibit. You
can total these items [40] and deduct that from
the total amount, and you can prepare your decree.
Unless formal findings are presented, these find-
ings will be adopted as the court's findings in the
case1.

JEREMIAH NETERER
Judge.

[Endorsed] : Filed Dec. 2, 1940. [41]

In the United States District Court in and for the
Southern District of California, Central Divi-
sion.

No. 658-M Civil

HAGENBECK- WALLACE SHOWS COMPANY,

a corporation,

vs.

FANCHON & MARCO, INC., a corporation,

Defendant.

JUDGMENT

Be it remembered that this cause came on regu-
larly for trial before the Honorable Jeremiah

Hagenbeck-Wallace Shotvs Co. 47

Neterer, Judge presiding in the United States Dis-
trict Court in and for the Southern District, Cen-
tral Division thereof at Los Angeles, California,
jury having been waived by the parties hereto. The
plaintiff Hagenbeck-Wallace Shows Company, a
corporation appeared being represented by Combs
and Murphine, Lee Combs, Thos. F. Murphine and
John F. Reddy, Jr. its attorneys and the defendant
Fanchon & Marco, Inc., a corporation appeared
being represented by MacFarlane, Schaefer Haun
& Mulford by Henry Schaefer Jr. and William
Gamble its attorneys; the matter was duly and as
by law provided after due and lawful notice thereof
on for trial on November 14, 18, 22, 27, 28, 29,
1940 and evidence both oral and documentary hav-
ing been presented by both plaintiff and defendant
and received by the court in the above-entitled
cause, and arguments of counsel on behalf of both
of the parties hereto having been made by their
respective attorneys and the same having been
heard and considered by the court, and the court-
having made its findings and stated the same in its
Certificate of Pretrial Hearing under Rule No. 16
and in its findings of fact transcribed herein by the
reporter in the matter and duly adopted and made
its findings by the court herein, further and other
findings of fact and conclusions of law having been
waived by attorneys for the respective parties [42]
hereto in open court, and the court being fully ad-
vised in the premises.

48 Fanchon & Marco, Inc., vs.

Now there/or it is hereby ordered adjudged and
decreed that plaintiff Hagenbeck- Wallace Shows
Company have and recover of defendants Fanchon
& Marco Inc. the sum of Fifteen Thousand, six
dollars ($15,006.07) and seven cents together with
its costs of suit taxed herein in the sum of $356.43
and the plaintiff have execution therefor.

Done in open Court this 3rd day of December
1940.

JEREMIAH NETERER

Judge of the United States
District Court.
Approved as to form except that no findings are
waived.

MacFARLANE, SCHAEFER,
HAUN & MULFORD
By HENRY SCHAEFER, JR.

[Endorsed]: Judgment entered Dec. 3, 1940.
Docketed Dec. 3, 1940. Book C. O. 4— Page 87.
R. S. Zimmerman, Clerk. By Theodore Hocke, Dep-
uty. [43]

[Title of District Court and Cause.]

NOTICE OF APPEAL

To the Clerk of the District Court of the United
States, in and for the Southern District of
California, Central Division:

Notice is hereby given that Fanchon & Marco,
Inc., defendant above named, hereby appeals to the

Hagenbeck-Wallace Shows Co. 49

Circuit Court of Appeals for the Ninth Circuit
from the final judgment entered in this case on the
3rd day of December, 1940, and from the Order
of said Court denying its motion for a new trial.

Dated: January 13th, 1941.

MacFARLANE, SCHAEPER,
HAUN & MULFORD and
JAMES H. ARTHUR and
WILLIAM GAMBLE
By HENRY SCHAEPER, JR.

Attorneys for Panchon &

Marco, Inc.
1150 Subway Terminal Bldg.,
Los Angeles, California.

Copy of foregoing Notice mailed to Combs &
Murphine, Esqs., attorneys for plaintiff Jan. 16,
1941.

R. S. ZIMMERMAN,
Clerk.
By E. L. S.,

Deputy.

[Endorsed]: Filed Jan. 16, 1941. [44]

National Automobile Insurance Co.

[Title of District Court and Cause.]

SUPERSEDEAS BOND

Know All Men by These Presents :

That we, Fanchon & Marco, Inc., a corporation,
as Principal, and National Automobile Insurance

50 Fanchon & Marco, Inc., vs.

Company, a corporation organized and existing
under and by virtue of the laws of the State of
California, are held and firmly bound unto Hagen-
beck-Wallace Shows Company, a corporation, in
the above entitled suit in the penal sum of Twenty
Thousand and no/100 Dollars ($20,000.00), to be
paid to the said Hagenbeck- Wallace Shows Com-
pany, their successors and assigns, which payment
well and truly to be made, the National Automobile
Insurance Company, bind itself, its successors and
assigns, firmly by these presents.

Sealed with the corporate seal and dated this
16th day of January, 1941.

The condition of the above obligation is such that :

Whereas, the said Defendant, Fanchon & Marco,
Inc., a corporation, in the above entitled suit has
taken an appeal to the United States Circuit Court
of Appeals for the* Ninth Circuit to reverse a judg-
ment rendered and entered on the 3rd day of De-
cember, 1940, by the District Court of the United
States for the Southern District of California, Cen-
tral Division, in the above entitled cause :

Now, Therefore, the condition of this bond is for
the satisfaction of the judgment in full, together
with costs, interests and damages for delay if for
any reason the appeal is dismissed or if the judg-
ment is affirmed, and to satisfy in full such modi-
fication of judgment and such costs, interests and
damages as the appellate court may adjudge and
award, and in case of default or contumacy on the

Hagenbeck-Wallace Shows Co. 51

part of the principal or surety, the Court may,
upon notice to them of not less than ten days, pro-
ceed summarily and render judgment against them,
in accordance with their obligation and award exe-
cution thereon.

In Witness Whereof the corporate seal of said
surety is hereby affixed and attested to by its duly
authorized Attorney-in-Fact at Los Angeles, Cali-
fornia, this 16th day of January, 1941.

[Seal] FANCHON & MARCO, INC.,

a corporation
By MARCO WOLFF V. P.

NATIONAL AUTOMOBILE IN-
SURANCE COMPANY
By [Seal] R, L. TRAVISS

Attorney-in-Fact.

State of California,
County of Los Angeles — ss.

On this 16th day of January A. D. 1941, before
me, Margaret Murphy a Notary Public in and for
the County and State aforesaid, duly commissioned
and sworn, personally appeared R. L. Traviss, At-
torney-in-Fact of the National Automobile Insur-
ance Company, to me personally known to be the
individual and officer described in and who exe-
cuted the within instrument, and he acknowledged
the same, and being by me duly sworn, deposes and
says that he is the said officer of the Company

52 Fanchon & Marco, Inc., vs.

aforesaid, and the seal affixed to the within instru-
ment is the corporate seal of said Company, and
that the said corporate seal and his signature as
such officer were duly affixed and subscribed to the
said instrument by the authority and direction of
the said corporation.

In Witness Whereof, I have hereunto set my
hand and affixed my official seal at my office in the
City of Los Angeles County of Los Angeles the day
and year first above written.

[Seal] MARGARET MURPHY

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

My Commission expires Dec. 23, 1942.

Examined and recommended for approval as
provided in Rule 13.

HENRY SCHAEFER, JR.
Attorney for Defendant

I approve the foregoing dated Jan. 16, 1941.

paul j. Mccormick

U. S. District Judge.
[Endorsed] : Filed Jan. 16, 1941. [45]

[Title of District Court and Cause.]

DESIGNATION OP RECORD ON APPEAL

The Appellant herewith files its Designation of
Record on Appeal and requests that the Clerk in-

Hagenbeck-Wallace Shows Co. 53

elude for transmission to the Circuit Court of Ap-
peals the following:

Complaint

Answer and Counter Claim of defendant

Reply of plaintiff to defendant's counter
claim

Amended Counter Claim of defendant

Eeply of plaintiff to Amended Counter
Claim

Order on Pre Trial (filed Nov. 15, 1940)

Certificate of Pre Trial Hearing (filed Nov.
25, 1940)

Order of November 18th, Dismissing Sec-
ond and Third Cause of action of plaintiff

Findings of Fact and Conclusions of Law,
with the direction for the entry of judgment
thereon — Reporter's trans, pp. 417-424

Judgment

Notice of Appeal with date of filing

Following Exhibits not included in the Or-
der and Certificate on Pre Trial

Bills for repairs on Railroad cars from Santa
Fe Railroad to defendant — photostats

All of the Reporter's Transcript

Dated: March 12, 1941.

MacFARLANE, SCHAEFER,

HAUN & MULFORD
JAMES H. ARTHUR and
WILLIAM GAMBLE
By HENRY SCHAEFER, JR.
Attorneys for Defendant

54 Fanckon & Marco, Inc., vs.

Received copy of the within Designation this 13
day of March, 1941.

COMBS & MURPHINE
By THOS. F. MURPHINE

Attorney for Plaintiff.

[Endorsed] : Filed Mar. 12, 1941. [47]

[Title of District Court and Cause.]

AMENDED DESIGNATION OF RECORD ON

APPEAL

The Appellant herewith files its Amended Desig-
nation of Record on Appeal and requests that the
Clerk include for transmission to the Circuit Court
of Appeals in addition to the record heretofore
designated, all the exhibits admitted in evidence in
said case.

Dated: March 13, 1941.

MacFARLANE, SCHAEFER,

HAUN & MULFORD
JAMES H. ARTHUR and
WILLIAM GAMBLE
By HENRY SCHAEFER, JR.
Attorneys for Defendant

Received copy of the within Amended Designa-
tion of Record on Appeal this 13th day of March,
1941.

COMBS & MURPHINE
Attorneys for Plaintiff.

[Endorsed] : Filed Mar. 13, 1941. [48]

Hagenbeck-Wallace Shows Co. 55

[Title of District Court and Cause.]

ORDER EXTENDING TIME

On application of Henry Schaefer, Jr., and good
cause appearing therefor,

It is hereby ordered that the time for filing the
transcript on appeal, and the time in which the
designation of the contents of the record on appeal
may be filed, is extended to and including the 7th
day of April, 1941.

Dated: February 11th, 1941.

PAUL J. McCORMICK

Judge of the District Court

[Endorsed] : Filed Feb. 11, 1941. [49]

[Title of District Court and Cause.]

CERTIFICATE OF CLERK

I, R. S. Zimmerman, Clerk of the United States
District Court for the Southern District of Cali-
fornia, do hereby certify that the foregoing pages,
numbered 1 to 49, inclusive, contain full, true and
correct copies of the Complaint; Answer to Com-
plaint; Reply to Counterclaim; Amended Counter-
claim; Reply to Amended Counterclaim; Order on
Pre-trial Rule No. 16; Order Dismissing Second
and Third Causes of Action; Certificate of Pre-
trial Hearing; Decision and Findings of Fact and
Conclusions of Law; Judgment; Notice of Appeal;
Bond on Appeal; Order for Transmittal of Ex-

56 F cmchon & Marco, Inc., vs.

hibits on Appeal; Designation of Contents of Rec-
ord on Appeal; Amended Designation of Contents
of Record on Appeal; and Order Extending Time
to File Record on Appeal ; which, together with the
original Exhibits and the original Reporter's Tran-
script, transmitted herewith, constitute the record
on appeal to the United States Circuit Court of
Appeals for the Ninth Circuit.

I do further certify that the Clerk's fee for
comparing, correcting and certifying the foregoing
record amounts to $8.70, which fee has been paid to
me by the Appellant.

Witness my hand and the seal of said District
Court, this 28th day of March, A. D., 1941.
[Seal] R. S. ZIMMERMAN,

Clerk.
By EDMUND L. SMITH,
Deputy Clerk. [50]

[Title of District Court and Cause.]

Los Angeles, California,
Wednesday, November 27, 1940

TESTIMONY

Mr. Combs: In connection with the amended
counterclaim, although we are not certain that it is
required under the rules of court, we deem it ad-
visable to file an answer to the counterclaim, in
case it should be construed as a cross-complaint.

The Court : It may be received.

Hagenbeck-Wallace Shows Co. 57

Mr. Combs: I will come back to that matter in
a moment. I want to make some further argument
in connection with the [54] counterclaim, but at
this time I would like to call the court's attention —

The Court: Let me see the counterclaim.

Mr. Combs : It is served now in connection with
the memorandum of stipulations under the pre-trial
rule. There are several matters that I would like to
take up. Our information is that the matinee at
San Diego took place on time, and that that at
Pomona began at 3:00 o'clock, not 4:00 o'clock, as
stated in the momorandum, and therefore counsel
may disagree with me on that fact. Whatever the
cause for it is, now, from our standpoint, that con-
stituting a misstatement in the memorandum of the
pre-trial, wre would like to be relieved from such
commitment, and ask that those matters may rest
upon the proof. I think the proof will be very
simple upon the subject.

The Court: There will be no proof upon the
matter upon which the pre-trial certificate is filed.
I understood at the pre-trial that that was the time
agreed upon, and so did the clerk, and it was there-
fore certified. I don't know that that makes very
much difference, however.

Mr. Combs: I want to call the court's attention
to the fact that there are, according to our view-
point, two erroneous facts, as just stated, in that
connection, and there is a further erroneous fact
that I know that I did not state, as the pre-trial
memorandum has recited, to-wit, "That expense of

58 Fanchon d Marco, Inc., vs.

maintaining the animals was $400 a month." [55]
I stated $400 a week, if your Honor please.

The Court: Yes. You are right about that. The
word "month" should be "week," and it will be so
amended. You understand that, Mr. Schaefer?

Mr. Schaefer: Yes, your Honor, that is a fact.

The Court: I realize that that is an error, and
you will make note of the change, Mr. Clerk. Make
that "week" instead of "month."

Mr. Combs: There is one other slight matter,
to-wit, that the notice of rescission was served on
the 31st of May, but our understanding is that it
was served on the 1st of June.

The Court: It was so stipulated or so under-
stood at the pre-trial, and that will be the date that
will control.

Mr. Combs: I have stated those matters, then,
now, and that is all I have to state in that connec-
tion. I want to go on in connection with the amended
counterclaim in this matter. According to our con-
struction of the same, counsel has pleaded facts
which show that he has no right to a rescission
in this matter, and we are at this time, by motion,
raising the point in the form of a motion to strike
the counterclaim, and our causes of the motion are
also set forth in our answer to the amended counter-
claim. I call the court's attention to paragraph V
on page 2 :

"That immediately upon discovering that the
equipment furnished by the plaintiff was not in
good condition and [56] ready for use in compli-

Hagenbeck-Wallace Shows Co. 59

ance with the terms of the contract between the
plaintiff and defendant, the defendant notified the
plaintiff that saio^ equipment was not in good
condition and ready for use and specified the par-
ticulars wherein said deficiencies and need of re-
pairs in said equipment existed. That thereupon
the defendant was informed by the plaintiff,
through its agents, that the defendant should as-
sume to make such repairs and additions as were
nceessary to restore the equipment in such a con-
dition as to comply with the terms of the contract.
That thereupon this defendant proceeded to make
necessary repairs and additions to said equipment
and expended therefor the sum of Two Thousand
Five Hundred Dollars. That although defendant ex-
pended the sum as aforesaid, it was impossible for
this defendant to restore the equipment in a condi-
tion suitable for use for the purpose for which it
was intended, and that it was necessary in conse-
quence that defendant return said equipment and
rescind the contract as hereinbefore alleged. "

It is our understanding of the law that if a con-
tracting party assumes and agrees to make cor-
rections or repairs, if they are necessary, that it
therefore or thereby, in any event, waives its right
to rescind, if it ever had any right to rescind, and
it is our view that this counterclaim does not state
sufficient facts to constitute a cause of action,
because it, on the face of it, shows that the de-
fendant waived any right to rescission. And the
counterclaim does [57] not state sufficient facts to

60 Fanckon & Marco, Inc., vs.

constitute a cross-complaint or counterclaim for
damages for breach of contract, because the allega-
tions are insufficient in that respect. And again we
renew our request that the defendant be required
to state or elect whether it is proceeding on re-
scission or on damages for breach of contract, and
if they are proceeding on these pleadings on either
of these grounds, that this counterclaim be dis-
missed.

Mr. Schaefer: If the court please, on the ques-
tion of election as set forth in our points and
authorities, the very case which counsel cited is
set forth. We have each served our points and
authorities, your Honor, and filed them.

The Court: Are they in the record ? Have you
them, Mr. Clerk?

The Clerk: There is a statement of facts, your
Honor, there. Whether the authorities are there
I don't know.

Mr. Schaefer: They are attached to it, your
Honor. In answer to counsel's remarks as to an
election, if your Honor has read my points and
authorities, I have answered that in the points and
authorities. The case he cites, of House v. Piercy,
doesn't go as far as counsel's argument, but it only
says that one can only recover on one ground, and
alternately, but not on both, and of course that is
true. I acknowledge that. But it doesn't require
the election to be made at this time. The evidence
may go in [58] and then the determination has to
be made as to which cause of action is sustained.

Hagenbech-Wallace Shows Co. 61

And, as I say, the case counsel cites in his brief
doesn't go

The Court: Let me make this observation. I
understood at the pre-trial hearing that you elected
to proceed on the contract, or that you were pro-
ceeding on the contract. Am I in error on that*?

Mr. Schaefer: I understood the matter wasn't
settled, and that you said I was not required at that
time to make an election.

The Court: I stated that the action is on the
contract, and you said, "That is correct," and I
said, "The action being on contract, it is obvious
that election is required."

Mr. Schaefer: That is true. The action is on the
contract.

The Court: Yes.

Mr. Schaefer: But I think that is on the ques-
tion of counsel's other causes of action. He has, I
think, three, and your Honor ruled at that time

The Court: The others were disposed of, dis-
missed.

Mr. Schaefer: Yes.

The Court: The others were dismissed because
of the determination that the action was on the con-
tract.

Mr. Schaefer: That is correct.

The Court: So the other causes were dismissed.

Mr. Schaefer: That is correct. Now, with re-
spect to [59] the argument that the acts of the
defendant in making repairs, I take it that the force
of his argument is that that is a waiver, but I

62 Fanchon & Marco, Inc., vs.

don't see that the court can rule on that matter
now. The most that can be shown is that it was an
indulgence by the defendant in an1 attempt to
preserve the ownership. There is in evidence before
your Honor a certain sponsored contract, and the
defendant was bound by these contracts, and the
evidence will develop, and I don't see how your
Honor can rule until there are before your Honor
the conditions under which tjiose repairs were
made. It is alleged that they were made an!d
charged against the plaintiff. That is not a matter
that can be passed upon at this time, because it is
a matter of proof, and we are prepared to offer
proof on that particular point.

The Court: The question is, whether you have
stated an issue which requires proof under the
law, and that is what pleadings are for, is to fix
the issue and save the time of counsel and the par-
ties and the court in exploring the whole field, to
find out what the real facts are. The parties are
supposed to know what the facts are, and then
to present the issue so that it is concise.

Mr. Schaefer: That is correct, and I understand
that that is one of the purposes of the pre-trial.

The Court: Yes.

Mr. Schaefer: And we settled that matter, and
your Honor ruled at that time that the counter-
claim might be [60] amended, and that amendment
has been filed, and I think it follows the outline of
your Honor at that time. And we think the matter

Hagenbeck-Wallace Shows Co. 63

is now properly before the court and that the
counterclaim is sufficient.

The Court: You think you have stated facts
that avoid the rule?

Mr. Schaefer: Yes; we are satisfied on that.

The Court: I will hear the testimony on that
and reserve the matter for the future.

Mr. Combs: At this time we would like to call
Mr. Paul Eagles as an adverse witness.

The Court: Call him.

Mr. Combs: For cross examination under the —

The Court : Call him. We will find out.

Mr. Combs: Yes. Mr. Eagles. [61]

PAUL EAGLES,

called as a witness on behalf of plaintiff, being
first duly sworn, testified as follows:

The Clerk: State your name, please.

A. Paul Eagles.

Direct Examination

Q. By Mr. Combs: Where do you reside, Mr.
Eagles ?

A. In Los Angeles, 3523 West Olympic.

Q. What is your occupation?

A. I am a merchant.

Q. During the past years of your life have
you had any connection with circuses or a circus?

A. Yes.

Q. Will you relate to the court what that con-
nection was?

64 Fcmchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

A. I have been purchasing agent and had various
jobs, and also business manager, and manager.

Q. For what period of time ?

A. Well, over a period of approximately 25
years.

Q. And for what circuses did you engage in
those activities during that period of time?

A. Well, Al G. Barnes.

Q. Relate to the court approximately what years,
and what you did for Al G. Barnes.

A. Well, I was purchasing agent and I was busi-
ness [62] manager.

Mr. Schaefer: I am sorry. I can't hear, your
Honor.

The Court : Speak so that all of us can hear you.

A. I was purchasing agent and I was business
manager.

Q. By Mr. Combs: And for what years, Mr.
Eagles'? A. The last year was 1938.

Q. What was the first year?

A. Oh, about 1915 or 1914, in there.

Q. Subsequent to 1938 what circus did you work
for, if any? Did you say 1928 or 1938?

A. 1938.

Q. Subsequent to that year

A. Mostly with Al G. Barnes.

Q. Did you ever work for the Great American
Circus ? A. Yes.

Q. What year? A. In 1939.

Q. In what connection? A. Manager.

Hagenbech-Wallace Shows Co. 65

(Testimony of Paul Eagles.)

Q. Who employed you?

A. Wayne Daillard.

Q. Do you know who paid your salary?

A. Fanchon & Marco or Great American Circus.

Q. How long did you work for them in that
capacity ?

A. A little over two weeks.

Q. When did you first begin to work for them
in that [63] capacity?

A. About the 19th or 20th of May.

Q. 1939? A. 1939, yes.

Q. Relate to the court the circumstances of
your employment, that is to say, was it in writing,
or by oral employment?

A. I was called out to Fanchon & Marco's office
by Wayne Daillard, and he told me they wanted
me to manage the circus, go out and get it ready
and take it over to Inglewood and open it.

Q. Who was present at that conversation?

A. Ben Austin and, I believe, Marco.

Q. Were those all the persons present other than
yourself? A. I think so, at that time.

Q. And that took place at the offices of Fanchon
& Marco?

A. Yes, sir, in Wayne Daillard 's office.

Q. What did you say in response to Mr. Dail-
lard's statement?

A. I told him I would go to work.

Q. Was anything discussed regarding your sal-
ary? A. Yes, sir.

66 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q. What were the terms of that ?

A. They handed me a budget list, and it had in it
a [64] manager at $100 a week.

Q. And you took it that that was your salary?

A. Yes, sir.

Q. And that is the amount you were paid?

A. That is the amount I was paid.

Q. Did you begin work immediately?

A. The next morning.

Q. And that was approximately the 19th of
May, 1939?

A. Yes, somewhere in there. It was on a Friday
morning, just prior to the 24th.

Q. Upon the 19th you went to Baldwin Park,
did you? A. I went to Baldwin Park, yes.

Q. What is Baldwin Park? What significance
has that in relation to this circus?

A. That is where the Hagenback- Wallace cir-
cus was wintering.

Q. That was the winter quarters of the Hagen-
back & Wallace circus property? A. Yes, sir.

Q. Was the equipment of the Hagenback &
Wallace Show there at that place, or at least for the
most part?

A. For the most part, except some things down
in the city proper.

Q. Was the equipment, including the howdahs,
there or elsewhere?

A. I think they were over at the studio. [65]

Q. What studio? A. M. G. M.

Hagenoeck-Wallace Shotvs Co. 67

(Testimony of Paul Eagles.)

Q. What did you do upon your arrival at
Baldwin Park?

A. I met Mr. Clawson there, who was in charge
of the property of the Hagenback- Wallace circus
shows.

Q. That was your first act upon your arrival,
that you met him? A. Yes.

Q. Was anyone with you when you arived other
than you and Clawson there? A. No.

Q. Did anyone join you during that day?

A. Wayne Daillard came out.

Q. What time did he arrive?

A. Oh, some time in the forepart of the morn-
ing; I would say somewhere around 9:00 o'clock.

Q. What time did you arrive?

A. About 7:30 or 8:00 o'clock.

Q. What was the first thing that you and Mr.
Clawson did?

A. I told him I was going to be the manager of
the new circus, and I was going to help him get
the stuff out.

Q. What did he say?

A. He said all right.

Q. There were just the two of you present at
that conversation? [66]

A. I believe so. There could have been other
people. I believe Brown, the caretaker, was there.

Q. Harvie Brown? A. Yes.

Q. What did you do then?

A. We started to lay out what we were going to
take.

Did you examine those items at that time1?
Generally, yes. I didn't personally examine

68 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q. What did you lay out first, if you recall?

A. Wagons and poles and tents, and stuff like
that.

Q.

A.

them.

The Court: You didn't what?

A. Personally examine them all — just generally.

The Court: Let me understand. You say you
didn't personally examine them — just generally?

A. The wagons were sitting in the yard, and I
walked by them and looked at them, that is all, and
figured the ones we were going to take. There were
some 55 or 60 pieces there, and I knew we were not
going to take that many.

Q. By Mr. Combs: At that time did you pick
out the wagons you were going to take?

A. Yes.

Q. How many did you pick out ?

A. Around 25 or 26 wagons, somewhere in
there.

The Court: Let me ask you: How many wagons
were there altogether?

A. I would say 48 to 50. [67]

The Court: And you had the pick, and picked
23; is that the idea?

A. Yes. 26 was the exact number that I finally
ended up with.

The Court: 26? A. Yes.

Hagenbeck-Wallace Shows Co. 69

(Testimony of Paul Eagles.)

Q. By Mr. Combs: Now, after that, after you
picked out the wagons, what did you do?

A. Well, I started employing people around
there for different positions, bosses.

Q. And in that connection whom did you em-
ploy ? Do you have any record of that ?

A. Well, yes. I employed a boss property man,
a head porter, and a

Q. Who was the boss property man?

A. Oh, I don't know. I would have to look at
the records.

Q. But you recall that Pat Graham was the
head porter? A. The head porter.

Q. Who else did you employ, Mr. Eagles ?

A. All the general bosses there. Singleton was
there, but he had been employed by Charlie Morgan,
of Fanchon & Marco.

Mr. Schaefer: I move to strike that out as a
conclusion of the witness.

Mr. Combs: This man was manager of the cir-
cus, and [68] would be able to say.

The Court: Bo you know?

A. He was working there, and he told me he
was employed by Fanchon & Marco.

The Court: That will be stricken. The court
will not consider it.

Q. By Mr. Combs: What else did you do that
first morning, the 19th ?

A. We ordered the tent down, I believe, that
morning, from storage, at Baldwin Park.

70 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q. That tent belonged to whom?

A. It belonged to Baker & Lockwood.

Q. What did you do with the tent?

A. Took it down at the back lot, and Singleton
took the poles and his men and started laying
them out, getting ready to erect the tent back there.
I also hired a painter to paint all the title of this
circus off and put " Great American Circus" on the
side of them.

Q. Was this all done on that first day?

A. Yes ; we started.

Q. Was there anything else you did on that
first day, that you recall?

A. Got all the stuff together and started putting
it all together.

Q. Did you lay out the tent rigging, blocks and
falls? A. Singleton did. [69]

Q. Did you direct him to do it on that day?

A. Yes.

Q. Did you examine the poles for the circus?

A. Yes.

Q. All of this equipment was second-hand or
used circus equipment, was it not?

A. It was.

Q. You knew that fact at least as early as the
19th of May, did you not? A. Yes.

Q. In fact you knew it prior to that time, did
you not ?

A. I had it under sub-lease from November of
1938 until around the middle of March, or later,
possibly.

Hagmbeck-Wallace Shows Co. 71

(Testimony of Paul Eagles.)

Q. Of 1939? A. Yes, sir.

Q. You were very familiar with all of this
equipment? A. Yes, sir.

Q. Including both what was taken by Fanchon
& Marco for the Great American Circus and that
which was not taken ; is that correct ?

A. That is right.

Q. What did you do when you arrived at Bald-
win Park with relation to examining and making
such repairs as were necessary to the wagons?

A. Well, I believe that first day I hired a
mechanic who was on the Barnes Show, Forbes —
I am sure it was tlae [70] first day — and another
man who handled the tractors, and I told them to
look over the wagons that we were selecting, one
of them to look them over for the rings, to let them
up and down off the train to see if they were all
sound, and, if they were not, to get them repaired.

Q. Under your direction and supervision?

A. That is so.

Q. Did he report back to you in that connec-
tion? A. Yes.

Q. What did he report to you?

A. He reported to me that the wagons were
usable.

Q. And were there any repairs that were made
on those wagons?

A. Yes. I told him to make any necessary repairs
on the wagons.

72 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q. Were they in such condition as used circus
wagons would normally be in, at such a time1?

A. Yes.

Mr. Schaefer: I object to that as calling for
the conclusion of the witness.

The Court: I think, after what he has stated,
his conclusion is proper.

Q. By Mr. Combs: And were they, in your
opinion, in good condition and ready for use in the
business of the production of a circus at that time?
I will withdraw that. At the time of May 23rd, when
delivery was made at Inglewood? [71]

A. Well, I had used them and we hauled the
show out with them.

Mr. Schaefer: I move to strike that answer as
not responsive, your Honor.

Q. By Mr. Combs: In your opinion. Just an-
swer the question.

The Court : Answer the question as propounded.

Q. By Mr. Combs: In your opinion.

A. They were in usable condition, yes.

Q. Now, was that also true of the tent rigging,
blocks, falls and chairs?

A. I didn't make a personal examination of
those, except the chairs, and I had had them on
rental before.

Q. What was the condition of the chairs'?

A. They were in good condition. I had rented
them on a number of occasions, even over at the
Tournament of Roses parade.

Hagenbeck-Wallace Shows Co. 73

(Testimony of Paul Eagles.)

Q. They had been used in January of that
year, on that occasion?

A. That is so. And I used them after that at
Wrigley Field for the Angelus Chair Company, I
believe it was.

Q. In your opinion were they usable?

A. The chairs were in good condition.

Q. Did they constitute a hazard to the business
when they were used? A. No. [72]

Q. With relation to the tent rigging, blocks an
falls, in your opinion did they constitute a hazard
to the business at the time of their being used at
the Inglewood show?

A. I didn't personally have my hands on them
or examine the rigging, only just generally seeing
that everything was in its place.

Q. Did you have occasion to examine the train
flat decks and runs that were rented under this
contract ?

A. I selected the cars themselves, with Clawson.

Q. Did you select the calliope?

A. That is the only calliope on the show, and
it was there.

Q. You sawT it there and knew what calliope it
was, did you not ? A. Yes.

Q. Now, did you have occasion to examine the
condition of or the existence of the wardrobe ?

A. I hired a fellow by the name of George King
to look that over, who used to be a wardrobe man
on the Barnes Show.

74 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q. Did he look it over, in your employ?

A. Yes.

Q. Did he report back to you 1 A. Yes.

Q. What did he report to you?

A. Well, he was short on white pants, and he
said some of it, some of the stuff, needed cleaning,
and I believe it [73] was cleaned.

Q. Did you direct it to be sent out?

A. I took that up with Clawson and he agreed
to clean it.

Q. Did you direct the purchase of wardrobe and
garments to fill out the band equipment?

A. I left that to Mr. Daillard, and I don't know.
They were there when we opened.

Q. Do you know whether or not the band was
completely equipped with white caps?

A. They were when we opened, I am sure.

Q. Referring to the sleeping cars, do you know
whether or not there were any blankets, sheets or
pillow cases or curtains in those cars at Inglewood?

A. There was some blankets, some sheets, some
pillow cases; no berth curtains.

Q. When you were at Baldwin Park, subsequent
to the 19th and prior to the 23rd of May, did you
know of the fact that there were no berth curtains
in the sleeping cars? A. Yes, I knew it.

Q. You knew there were none there then?

A. Yes.

Q. Was anything done about acquiring those
four items just named, berth curtains, pillow cases,
sheets and blankets?

Hagenoeck-Wydllace Shows Co. 75

(Testimony of Paul Eagles.)

A. Yes. I called the United Tent & Awning up
and got a price on some blankets, and told Mr.
Daillard what it was, [74] and he ordered some.

Q. Was that also done respecting pillow cases
and sheets?

A. I don't remember how they were purchased.

Q. There were, however, pillow cases and sheets
when the train arrived at Inglewood?

A. I couldn't say as to that.

Q. Berth curtains were ordered from some other
organization, were they not, or company?

A. Pat Graham bought them in San Diego, the
head porter.

Q. Did you direct him to do so?

A. I was at the discussion. Daillard was the
one that authorized him to buy them.

Q. Did you hear Mr. Daillard authorize or di-
rect Graham to buy the curtains ? A.I did.

Q. Did you ever have any discussion respecting
elephant howdahs?

A. None that I can remember.

Q. Did you ever observe the absence or presence
of elephant howdahs during the course of your
occupation as manager of this circus?

A. We wouldn't have had any use for them.

Q. Why wouldn't you have had any use for ele-
phant howdahs?

A. The only place they would have been useful
was in [75] the grand entry, and that wouldn't fit
in with the show.

76 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q. You had no grand entry ?

A. Yes, but we just put the elephants in with
blankets on.

Q. Did you ever make a request to Hagenback-
Wallace Circus for elephant howdahs ?' A. No.

Q. Did anyone, to your knowledge, make such
a request? A. No, not to my knowledge.

Q. Did you know where the elephant howdahs
were? Did you have occasion to use elephant how-
dahs ?

A. Yes, because I had rented them to M. Gr. M.
Studio.

Q. And you would have known where to get
them if you wanted them; is that right?

A. That is correct.

Q. Did you have occasion to use elephant how-
dahs ? A. No.

Q. I have just referred, Mr. Eagles, to a num-
ber of items, which include wagons, tent rigging,
howdahs, calliope, etc., and a few other items. It is
a fact, isn't it, Mr. Eagles, that a circus of the size
of the Great American Circus needs a vastly greater
quantity of equipment than those few items I have
just referred you to? A. Yes.

Q. In other words — —

The Court: You don't need the other words.

[76]

Mr. Combs: All right. That is sufficient along
that line.

Hagenoeck-Wallace Shows Co. 77

(Testimony of Paul Eagles.)

Q. By Mr. Combs: You have referred to your
activities on or about the 19th of May, 1939. Do
you recall any other of your activities from that
date until the date of May 23, 1939, in connection
with your service as manager of the circus'?

A. We just continued our painting the show,
painting out the titles and lettering them, and
getting it put together, and putting up the tent. And
we were supposed to have a rehearsal, and we didn't
have it out there.

Q. Your time was engaged during that period
from May 19th until the stuff arrived in Inglewood
in getting it sorted and passed upon and putting in
condition this equipment?

A. That is right.

Q. You were out there most of that entire time,
were you? A. All during the day, yes.

Q. That, in fact, was your entire activity during
that period of time ? A. Yes, sir.

Q. During that time did you lay out the tent
and rigging? A. George Singleton did the job.

Q. And did you examine it?

A. I saw it when it was up.

Q. Did he do so under your direction and super-
vision? [77] A. Yes, sir.

Q. And that is true of every bit of equipment
in connection with the Great American Circus?

A. Yes.

Q. In other words, you selected it, laid it out,
and examined it before it ever left Baldwin Park?

78 Fanchon & Marco , Inc., vs.

(Testimony of Paul Eagles.)

A. That is true.

Q. And you knew, as a matter of fact, either
from your own knowledge, or from those subordi-
nate to you, the exact status, condition and extent
of all that equipment?

A. As near as it is possbile for anybody to know,
with that much stuff that they are loading up in
three days.

Q. Either yourself personally, or through em-
ployees of Great American Circus whom you di-
rected to ascertain the facts for you?

A. Yes. Daillard went over some of the stuff
with us too.

Q. Do you know what capacity Daillard went
over the stuff in?

A. Well, he was my boss. That is all I know.

Q. He was your boss, and you were responsible
to him; is that correct? A. That is right.

Q. Now then, the equipment was delivered at
Inglewood, was it not? A. Yes, sir. [78]

Q. On or about the 23rd of May?

A. That is right, the morning of the 23rd.

Q. Were you present at Baldwin Park when it
left there on the railroad cars?

A. I rode the train out.

Q. You rode the train right to Inglewood?

A. Yes, sir.

Q. Then you were present when it arrived at
Inglewood? A. That is right.

Hagenbeck-Wallace Shows Co. 79

(Testimony of Paul Eagles.)

Q. Were you present when the equipment was
taken off the cars? A. Yes.

Q. And present when it was set up at Ingle-
wood? A. Yes, sir.

Q. Was it all completely set up?

A. Yes, and we had some left over that we sent
back.

Q. You sent back some equipment? A. Yes.

Q. Do you know about what that equipment
was?

A. No, but I got a truck out there and they
loaded it on those stock cars. We didn't have any
stock going over except elephants and camels, and
we loaded a lot of stuff in that stock car to send it
back.

Q. Now then, the tent was erected and you were
then ready for the first performance at Inglewood,
was it not? A. Yes. [79]

Q. And have you in your possession any rec-
ords which will give, or from which we can obtain
a resume of the items constituting the equipment
delivered at Inglewood?

A. I have a list of the wagons and their numbers.

Q. Will you be good enough to hand me that
list for a moment?

A. Then I have the general total here in my
handwriting of the stuff that was on the train.

Q. All right. Now, referring to this document —

The Court: Let it be marked, if it is going to
be referred to, as an exhibit.

80 Fanchon dc Marco, Inc., vs.

(Testimony of Paul Eagles.)

Mr. Combs: May we have it marked for identi-
fication as Plaintiff's Exhibit A?

The Court: Mark it A-l, and make them A's
with numerals after them.

Mr. Combs: Counsel, I will show you A-l for
identification.

Q. By Mr. Combs: I show you Exhibit
A-l for identification, and ask you whether or not
you can identify that document as the list to which
you just referred.

A. Yes, it is a list I made out at Baldwin Park.

Q. Will you state what these figures on the
sheet mean ?

A. At the top it says, "Cook House," and then
three wagon numbers, which are the wagons the
cook house was loaded in. The next two are the
light plants, that the light plants were in. [80]

Q. Next under "lights"?

A. Yes, sir. One of the wagons belonged to the
American Circus Corporation, and the other was a
wagon furnished by Hagenback & Wallace. The next
one is the sound wagon. And the next one is the
white ticket wagon. The next one is the train light
plant, and the next two are chair wagons. The next
one is a property wagon. The next one is a blue
plank wagon. The next one is a sideshow wagon. We
loaded the menagerie in that. And a wardrobe
wagon. Another property wagon. Two more plank
wagons. A jack wagon, and another wagon for the
padroom canvas. An elephant wagon, for property

Hagenbeck-Wallace Shows Co. 81

(Testimony of Paul Eagles.)

of elephants. A pole wagon, and two padroom trunk

wagons. A candy wagon. A red ticket wagon. An

orang-outang cage. This next one is a private wagon

that belonged to Goebel, and the usual tigers and

lions loaded in it. Then there are two trucks on

there.

Q. The figures that appear in this second column
comprise the footage of the wagons; is that right?

A. That is right,

Q. How many wagons were delivered at Ingle-
wood?

A. All these wagons, to the best of my recollec-
tion.

Q. 33 in number?

The Court: Everything on that exhibit was de-
livered ?

A. That is right.

The Court: That answers the question.

A. There was 26 Hagenback wagons, and there
was some [81] other stuff on the train too.

The Court: Is that totaled in the exhibit?

A. No.

Q. By Mr. Combs: These wagons were Hagen-
back-Wallace wagons? A. Yes.

Q. And the others belonged to other individuals ?

A. That is right.

Mr. Combs: We offer the document in evidence
as Plaintiff's Exhibit A-l.

The Court: Admitted.

82

Fanchon <k Marco, Inc., vs.

(Testimony of Paul Eagles.)

PLAINTIFF'S EXHIBIT A-l

Cook House

[Footage]

51

17%

52

19

53

17

54

13

Lights

112

18

60

18

Sound

74

15

41

18

White Ticket

1200

10

Cross Light Plant

C88

22

Chair

73

18

a

72

18

Props

85

16

Blue Plant

50

18

Side Show and Menagerie

70

19

Wardrobe

84

16

Props

86

16

Plank

80

16

i (

87

22

Jack

78

18

Padroom Canvas & Dogs

38

18

Elephant

100

38

Pole Wagon

75

20

Pad Room Trunk

71

20

n tt a

76

18

Candy Wagon

40

18

Red Ticket Wagon

16

Orang

34

Bert Nelson 2 trucks

526i/2

80

Four 20' trucks

606i/2

[Endorsed] :

Filed Nov. 27, 1940.

Hagenbeck- -Wallace Shows Co. 83

(Testimony of Paul Eagles.)

Q. By Mr. Combs : Now, did anything occur at
Baldwin Park shortly before your departure for
Inglewood, with reference to a shortage of wagons'?

A. We had the light plant loaded in a wagon we
had rented from the Springfield Wagon Works
representative in Alhambra. We had the light plant
all put in there, and then they sold them to the
United Tent & Awning Company.

Q. So you had to change and get another wagon
from Hagenback- Wallace for the light plant?

A. Yes. This was an Al G. Barnes Circus wagon.
And we took the 50 kilowatt plant out and put it
in this wagon.

Q. Was that done under your direction and sup-
ervision? A. Yes, sir.

Q. I note that 26 Hagenback- Wallace wagons
were [82] delivered at Inglewood, whereas the con-
tract called for 20. Do you know the occasion for
that? A. I didn't see the contract.

Q. You never saw the contract yourself?

A. Away afterwards. I didn't read the particu-
lars of it.

Q. All right. Then so far as you knew there
were 26 wagons to be taken at that time?

A. That is what my list showed.

Q. That is what you gathered together as neces-
sary to take this show over to Inglewood?

A. Yes.

Q. Now, at Inglewood was there anything par-
ticular that occurred with relation to the perform-

84 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

ance that was extraordinary or did not go off on

schedule and in a normal manner?

A. In Ingle wood ?

Q. Yes.

A. Well, no. I had to hold the show a little bit
there on account of the actors hadn't had a
rehearsal.

Q. How long did you hold the show for that
cause ?

A. To the best of my recollection, about 40
minutes.

Q. But it went on about 40 minutes late at that
time ? A. Yes.

Q. Was that delay in any way caused by faulty
or defective equipment? [83] A. No.

The Court: He said because the actors hadn't
rehearsed.

Q. By Mr. Combs: Did the evening show go
off on schedule and in order? A. Yes, sir.

Q. What did you do after you completed the
performance at Inglewood?

A. Well, we tore the show down and got ready
to move. It took us all night to tear it down, and
we got out that morning and loaded it on the
Santa Fe, and went to San Diego.

Q. Was there anything extraordinary about the
length of time necessary to tear the show down?

A. We had all green help.

Q. Would you say it was -competent or incompe-
tent circus help?

Hagenbeck-Wallace Shows Co. 85

(Testimony of Paul Eagles.)

A. Some, of them were all right, competent
help, and others, the working men, were new and in-
experienced.

Q. Where did you get the workmen for this per-
formance %

A. I sent Pat Graham out, and he

The Court: Do you care where he got them?

Mr. Combs: The only point on that, if your
Honor please, is that I would make this offer of
proof in that connection, that these men were just
general working people that they picked up from
employment places on Main Street, and not efficient,
capable circus hands.

Mr. Schaefer: It is immaterial where they got
them, [84] if they were green men.

The Court: If you go into that, it would open
the field for cross examination that would consume
considerable time.

Q. By Mr. Combs: Directing your attention to
a stage upon which the Fanchonettes performed,
was there anything extraordinary in so far as
the circus was concerned about that piece of equip-
ment?

A. Yes. It was not suitable for quick movement.

Q. How long did that take to construct and tear
down?

A. Well considerable time. The first day we set
it up the men that built it should have been

Q. That was in Inglewood?

A. That was in Inglewood.

86 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q1. Who tore it down?

A. I would say it took four or five hours to
put it up. And then our men struck it, and we
loaded it on the pole wagon that night.

Q. You loaded it on the pole wagon?

A. Yes.

Q. And took it to the railroad cars and shipped
the whole of the equipment to San Diego?

A. That is right.

Q. When did you arrive in San Diego?

A. Along in the afternoon. I don't remember
the exact time. [85]

Q. That would be the afternoon of the 24th of
May?

A. No, that was — we showed in Inglewood the
24th of May, and that would be the 25th of May.
It took us all night to load out, and we traveled on
the 25th.

Q. And arrived there on the 25th ? A. Yes.

Q. Did anything occur at Inglewood in relation
to setting up the show out of the ordinary — I mean
at San Diego — out of the ordinary?

A. No, at San Diego we moved right along.

Q. You got the show set up in order and nothing
out of order occurred?

A. We hired some tractors there to pull us on
the lot,

Q. In connection with that, relate to the court
what the occasion for hiring the tractors was.

Hageribeck-Wallace Shows Co. 87

(Testimony of Paul Eagles.)

A. It was a soft, sandy lot, and we didn't have
any power.

Q. What happened when the wagons wrere pulled
out on the soft, sandy lot?

A. We just pulled them in off the street as far
as they could go on hard ground, with the show's
trucks, and then the hired caterpillars pulled them
over and spotted them.

Q. What was the occasion for using caterpillars ?
Was it because the lot was so difficult to negotiate
with heavy wagons? A. That is right. [86]

Q. And these wagons stood up under the strain
of hauling around with caterpillars, did they?

A. Yes.

Q

A

Q

A

Q

A

then

Q
Q
Q

A

Q

ard? A. Yes.

A. Yes.

Q. And equipment normal and up to standard
at that time ? A. It was all satisfactory.

All of them at that time ?
Yes. I can't remember of any breakage.
How many shows did you have at San Diego t
We gave five shows, I believe.
And they all went off on schedule?
One was at night, the night of the 26th, and
we was in San Diego the 27th and 28th.
Five shows, and all on schedule ? A. Yes.
And as expected? A. Yes, sir.

Nothing extraordinary occurred?
Not that I know of.
The performance normal and up to stand-

88 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q. What did you do after completing those five
performances in San Diego?

A. We hired another tractor that night to come
off with, and we tore the show down and hauled
it off.

Q. And where; did you go ?

A. Back to the train again, and loaded it on the
flat [87] cars. And from there we went to Santa
Ana.

Q. Did anything occur at Santa Ana with rela-
tion to the equipment that was out of the ordi-
nary?

A. Yes. We had a long hill there, and I think
the pole wagon went over the side of the run.

Q. What was the occasion for that ?

A. I wasn't there. All I know is the report that
it was so.

Q. Who reported it to you?

A. The trainmaster — or Pat Graham came down
and told me it was reported to him by the train-
master.

Q. Are you able to say whether or not it went
over the side of the run because of some faulty
construction of either the wagon or the run?

A. I don't know.

Q. Have you ever had opportunity to observe a
wagon slip off a run before, in the conduct of a
circus? A. Yes.

Q. In fact, that is usually an accident1 that
occurs as a result of wrong turning?

Hugenbeck-Wallace Shows Co. 89

(Testimony of Paul Eagles.)

A. It could be, if he didn't handle the pole of
the wagon properly coming across the platform.

Mr. Schaefer: I move to strike that out, your
Honor. He wasn't there, and he has given what
might be a reason.

The Court: He is giving his ideas as a man fa-
miliar with this sort of business, and I think it is
proper. The [88] court will only give it such weight
as it ought to have, anyway.

Q. By Mr. Combs: Now, in other words, it is
a more or less common accident

The Court : The other words do not help us any.

Mr. Combs: All right. Withdraw the question.

Q. Then was there anything else that occurred
at Santa Ana out of the ordinary, in the produc-
tion of this circus ?

A. We were late, to start with, getting in there.
If I remember correctly, it was about 9 :30 when we
got into San Diego, in the morning.

Q. What time were you due there?

A. We was off the lot a little after 2:00 o'clock
in San Diego, and should have been — about 3:00
o'clock — and we should have ben there about 6:30 to
7:00.

Q. Do you know what the occasion for that
lateness was? A. No, I didn't even ask.

Q. Just a case of the train not getting there?

A. Not arriving.

Q. You arrived at 9:30 instead of about 6:00
o'clock? A. That is my recollection.

90 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q. What did you do after it arrived?

A. We unloaded the show, and took it up to the
lot, which was about three or three and a quarter
miles, and started erecting our tents.

Q. In your experience as a showman, is three
[89] to three and a quarter miles a long or a short
haul?

A. That is considered a long haul.

Q. What is considered a normal or ordinary
haul ? A. A mile to a mile and a half.

Q. Do you know anything with respect to the
manner in which the equipment was operated on
that long haul from the railroad to the lot?

A. Well, they had difficulty — they reported to
me that they had difficulty with one wagon.

Q. What was reported to you with relation to
that wagon?

A. That they had a hot box. One of the hired
trucks was hauling it.

Q. Do you know anything about the speed at
which that wagon was being hauled ?

A. I do not.

The Court : A hot box on one of the wagons ?

A. On one of the wagons, the plank wagon, I
believe it was.

Q. By Mr. Combs: It was a plank wagon?

A. I believe it was.

Q. That was the only one that was reported
to you as out of order at that time?

A. It is the only one we had trouble with.

Hageribeck-Wallace Shows Co. 91

(Testimony of Paul Eagles.)

Q. At Santa Ana? A. At Santa Ana.

Q. Now, what did you do after you learned that
the wagon [90] had a hot box?

A. Sent the shop man up to find out about it,
Forbes, and a fellow that he had.

Q. Did you get any report from them?

A. They reported back to me that the wagon
was on the way up there.

Q. How soon did they make that report?

A. Within 15 or 20 minutes.

Q. Within 15 or 20 mnutes? A. Yes.

Q. Then will you state that the wagon arrived
at the lot in Santa Ana prior to and preparatory
to erecting the equipment?

A. I don't remember accurately.

Q. Approximately an hour or so after the ar-
rival of the train?

A. After the arrival of the train, yes.

Q. I am just guessing on that.

A. Approximately an hour and a half.

Q. Did anything abnormal occur in the erection
of the equipment at Santa Ana that day?

A. Not that I can remember.

Q. Did the show go on on schedule that day?

A. No.

Q. How long did it take that day, if you recall,
to erect the Fanchonette stage ? [91]

A. Well, considerable time.

Q. Will you say that it took as much as from
four to seven hours to erect that stage ?

92 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

A. Not seven, no. I would say it would take an
average of two and a half hours.

Q. Two and a half hours, an averaged

A. Yes.

Q. The Fanchonette stage was no part of the
equipment belonging to Hagenback- Wallace, was
it? A. No.

Q. That belonged to Fanchon & Marco, did it
not?

A. It was provided for by them. I have who it
belongs to here, because I returned it to them, I
believe. No, I haven't. It was somebody they rented
it from.

Q. In Inglewood, and it was not upon the cricus
train ?

A. It was loaded on the circus train every night.

Q. I mean prior to your arrival in Inglewood?

A. No.

Q. Did you take over a large quantity of the
equipment in addition to that at Baldwin Park,
on your arrival at Inglewood?

A. We made some swinging ladders there, and
we cut the big ring curbs up, reduced them in size,
so we could load them in the wagon. They were
great big wide ring curbs, and we just cut them
in size.

Q. Back to Santa Ana again: Did anything
occur in the [92] production of that circus that
delayed or interfered with the thing ?

A. All the things we talked about. I was ready to
show at 5:30.

Hagenbeck-Wallace Shows Co. 93

(Testimony of Paul Eagles.)

Q. What time was the show supposed to be
produced ?

A. It was supposed to be at 2:15 in the after-
noon.

Q. Then you were about two hours and fifteen
minutes late? A. That is right.

Q. What was the occasion for that lateness %

A. Everything in general.

Q. What do you mean by that?

A. I mean late arrival, long haul, and the floor
held us up a little.

The Court: 15 or 20 minutes, you said?

A. Something like that, and the laying of the
stage. That is about it,

Q. By Mr. Combs : What about the men %

A. Yes, the men were still green. They were
coming and going. We had a tremendous turnover
in labor every day.

Q. Hard to manage, and hard to get others to
work efficiently and fast ?

A. That is right, They didn't know what to do,
and we didn't have enough bosses to show them.

Q. In your experience with circuses, do you very
occasionally or rarely have a hot box in the equip-
ment? [93]

A. It is not uncommon.

Q. It is not uncommon % A. No.

Q. What did you do after the performance in
Santa Ana?

94 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

A. After the night performance, we tore down
in the usual manner and loaded the stuff in the
wagons and hauled them back to the train.

Q. Was there anything abnormal about that on
that occasion^

A. The same wagon gave us trouble going back,
although we had greased it,

Q. But you greased it and it did operate all
right I

A. No. It gave us trouble. It had another hot
box.

Q. Did that delay you any in getting the equip-
ment on the train'? A. It delayed us some.

Q. How much? A. Oh, 30 minutes or so.

Q. Then what occurred after you got the stuff
loaded in Santa Ana?

A. We went to Pasadena.

Q. When did you arrive in Pasadena ?

A. We were late getting into Pasadena, very
late.

Q. How late?

A. I don't recall the time, but I know it was
late.

Q. Several hours? [94] A. Yes.

Q. Was that due in any way to the condition of
the equipment, or was the cause of it the trans-
portation of the railroad?

Mr. Schaefer: I object to that. Let him tell what
it was.

Hagenbeck-Wallace Shows Co. 95

(Testimony of Paul Eagles.)

The Court: What was the cause of the delay?

A. I was asleep. I don't know.

Q. By Mr. Combs: You don't know?

A. I was on the train. I went to sleep, and I
know we were late into Pasadena.

The Court : Do you know what time you arrived
in Pasadena.

A. I can't recollect exactly. It was in the late
morning some time, I would say around 9:30 to
10:00 o'clock.

The Court : What time should you have arrived ?

A. We should have arrived there possibly at
8:00 o'clock or 8:30.

Q. By Mr. Combs: What time did you leave
Santa Ana?

A. I believe it was about 6:30. I am not very
clear on it.

Q. What occurred when you arrived at Pasa-
dena?

A. We hauled the stuff out to the lot, all the
wagons and everything, and started to erect the
tent and the main falls, and the rope on the third
pole, I believe, was the one that broke. It snapped
about three times when we were [95] pulling the
peaks.

Q. Did anything else occur other than that at
Pasadena? A. We lost the afternoon show.

Q. Did you get the main fall repaired?

A. Yes ; they spliced the rope, I am sure.

Q. Do you know who spliced it?

96 F anchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

A. I believe Singleton or one of his sail-makers.
I couldn't say.

Q. Had you ordered any rope prior to that time
for the main falls ? A. Yes.

Q. How much rope? A. 1500 feet.

Q. From whom?

A. Wired the order in to Daillard.

Q. When did you do that?

A. At Inglewood.

Q. At Inglewood? A. Yes, sir.

Q. An extra or spare rope for the main fall,
is that right? A. Yes.

Q. And it had not arrived by the time you got
to Pasadena? A. No.

Q. Was there anything else in relation to the
equipment [96] that was abnormal or unusual on
that day at Pasadena?

A. I don't think so. We showed that night.

Q. You showed that night? A. Yes.

Q. Did the show go on normally or in order that
night %

A. Yes. I had a complaint from a couple of
actors, but that was straightened out.

Q. The performers all went on and performed
their acts ? A. That is right.

Q. In fact they did so at all of the productions
of the circus that were given, did they not?

A. That is right.

Q. Then after Pasadena what did you do?

Hagenbeck-Wallace Shows Co. 97

(Testimony of Paul Eagles.)

A. Tore down and loaded up and went to Po-
mona.

Q. Did anything abnormal happen on that oc-
casion ?

A. The men left the dog wagon on the lot, and
after we were ready to load they come down to that
place where the dog wagon was, and they found it
was off the lot.

Q. And you had to go back and get it?

A. Yes, we had to go back and get it.

Q. That delayed your departure slightly, didn't
it? A. It did.

Q. But there was nothing in connection with the
equipment that caused that or any other delay there
at Pasadena?

A. No. They just overlooked it in the dark.

The Court: What kind of a wagon did you say?

[97]

A. A dog wagon. We had a dog act.

Q. By Mr. Combs: Then when did you arrive
in Pomona?

A. We arrived in Pomona about 8:30, if I re-
member correctly.

Q. On what day?

A. On the 1st of June; the 30th at Pasadena,
and the 1st at Pomona.

Q. Wasn't it the 31st day of May?

A. Pomona, that is right, the 31st day of May,
on a Wednesday.

98 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q. Did you get the show up in order on that
day? A. Yes.

Q. On time?

A. We were just a little late. I would say 3:00
o'clock we opened the doors.

The Court: That was Pomona? A. Yes.

Q. By Mr. Combs: What was the occasion for
being that late?

A. The usual thing, just that the men didn't
function properly, although we were better organ-
ized there than we had been at any other time.

Q. Green labor? A. That is right.

Q. And not the equipment?

A. I don't remember of any failure of equip-
ment in [98] Pomona.

Q. Did you put on the matinee? A. Yes.

Q. In order? A. Yes.

Q. Did you put on the evening show?

A. Yes.

Q. In order? A. Yes.

Q. Nothing abnormal occurred at either of those
shows? A. Not that I can recall.

Q. Subsequent to that what did you do?

A. That is the night we had the labor trouble.
And we were billed to go to Glendale, and at the
last minute Daillard, who had been away all day —
I think it was around 10:00 o'clock or 10:30' — he
came back and told me that the A. F. A. had pulled
out some acts.

Q. What is the A. F. A.

Hagenieck-Wallace Shows Co. 99

(Testimony of Paul Eagles.)

A. American Federation of Actors.

Q. A union? A. That is right.

Q. Did Daillard say anything else at the time?

A. We had our transportation paid to Glendale,
and somebody went down and changed the destina-
tion to Baldwin Park.

Q. Did you do that? [99] A. I did not.

Q. Did you go to Baldwin Park?

A. I went to Baldwin Park.

Q. When did you arrive there?

A. In the early morning.

Q. On the 1st of June, in the early morning?

A. Yes.

Q. What occurred when you arrived at Baldwin
Park?

A. We unloaded the train and took it back in
winter quarters, and I stayed there with the crew
and put the show away and returned all the rented
stuff to the different people. We had horses from
some people; we had tents from others, Baker &
Lockwood.

Q. Under whose direction did you do that?

A. Wayne Daillard 's.

Q. And there was no further performance of
the circus after that? A. No.

Q. Back again, Mr. Eagles, to Pasadena: Did
you have any extraordinary or unsual trouble with
the laying of the stage in Pasadena?

A. In Pasadena is where Red Forbes started to
lay that stage, and the property boys never laid it,

100 Fcmchon <& Marco, Inc., vs.

(Testimony of Paul Eagles.)

and he brought his crew over there and thought

possibly he could get some of them to lay it, but

he didn't and we had to put a lot of extra men on

there to lay the stage, and it was quite a [100]

problem.

Q. The loss of time in the laying of that stage
must have been of concern to you prior to that time,
because you called in Forbes to assist?

A. That is right.

Q. And you had already noted that it was a
hazard or obstacle to getting the equipment erected
in time for performance; is that right?

A. That is right.

Q. Again at Pasadena, did anything occur there
with relation to the refund of admissions?

A. No — at Santa Ana.

Q. Was it at Santa Ana? A. Yes.

Q. Isn't it true that at Pasadena you w^ere
ready to put on the show^ and

A. No; that was Santa Ana. We missed the
afternoon show in Pasadena.

Q. But at Santa Ana you were ready to put
on the afternoon show, and did anything occur in
that connection?

A. I had all the performers ready, and notified
Mr. Clawson, who was the equestrian director, that
we would show that afternoon, and the committee
who were showing there wanted the return of some
money, and in the meanwhile they went out to the
wagon with Mr. Daillard, and I believe he turned
back some money. [101]

Kagenbeck-W allace Shows Co. 101

(Testimony of Paul Eagles.)

Q. About $90?

A. I believe so. And there wasn't any customers
there, so I called it off.

Mr. Combs: That is all.

The Court: Cross examine.

Mr. Schaefer: I understand that Mr. Eagles
has been called as an adverse witness. Is that right?

Mr. Combs: That is right.

Cross Examination [102]

Q. You say you didn't personally examine all
the equipment? A. That is true.

Q. And you didn't personally examine the
wagons? [107] A. Only in a general way.

Q. How carefully did you make the examina-
tion?

A. I probably walked around them and looked at
them in a general way.

Q. You made no examination of the axles or
the boxings? A. No.

Q. There were probably 48 or 50 wagons there?

A. That is right.

Q. And you selected wagons merely for their
size, or what you thought would be their ability
for carrying the loads? A. That is right.

Q. And out of that group you picked out 26?

A. That is what my record shows.

Q. Now, the men you employed, were they what
might be called the heads of departments? You em-
ployed a porter?

A. A head porter, yes. They were heads of de-

102 Fanchon dk Marco, Inc., vs.

(Testimony of Paul Eagles.)

partments, yes, with the exception of George Single-
ton. [108]

A. Well, generally speaking, they were in good
condition. There were some repairs made on them
in Inglewood, and they passed the test there. There
was some decking on one or two of the cars that
I fixed in San Diego, spliced in some lumber around
the decking.

Q. Were there any other repairs made to the
cars other than in San Diego?

A. Yes, at Inglewood. We had an inspection at
Baldwin Park.

Q. Who made those repairs?

A. The Santa Fe Railroad mechanics.

Q. And were you there when they made them1?

A. I was at lunch with Mr. Clawson when the
two of them come down and reported that there
was a couple of minor repairs they wanted to make
on the outside of the cars, and [116] he agreed to
take us over to Inglewood if we had air, if the
valves were in good shape, the air lines, and the air
was all right when the Pacific Electric coupled on
to us. And then they took the train back to Los
Angeles and made two or three hundred dollars
worth of repairs.

Q. Did I understand you to say they were minor
repairs ?

A. Yes. They gave the train a general going
over. They even repaired a step on one of the
coaches.

Hagenbeck-W,allace Shows Co. 103

(Testimony of Paul Eagles.)

Q. Were there any blankets or sheets or pillow
cases? A. There were some.

Q. How many?

A. I didn't count them. Mr. Graham did. I
haven't the count here in front of me.

Q. By the way, Mr. Clawson was the representa-
tive, so far as you knew, of Hagenback- Wallace out
there ?

Mr. Combs: He was your employee, too.

Mr. Schaefer: He was an employee when he
came over in the circus. I am not denying that.

The Court: Proceed.

Q. By Mr. Schaefer: Mr. Clawson was the man
in charge of the winter quarters? A. Yes.

Q. Did you have any conversation with Mr.
Clawson with respect to the blankets and sheets and
pillow cases?

A. Yes. I believe I asked him if he was going
to furnish them — or Daillard was there, and I can't
remember [117] the conversation, but I know that
Mr. Daillard asked me to call up the United Tent
& Awning Company, or somebody, and get a figure
on some blankets, used army blankets.

Q. What I am asking you now is for your con-
versation with Mr. Clawson.

A. I can't recall it, exactly what the conversa-
tion was.

Q. I don't want it exactly. I want only the sub-
stance.

104 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

The Court: Was it with Clawson?

A. Yes.

Q. By Mr. Schaefer: What did he say to you
about it?

A. I can't recall that.

Q. Do you remember the substance of it?

A. No, I don't.

Q. Did you talk to him about it?

A. The three of us were there, Daillard and
Clawson and myself.

Q. Did you or Daillard say anything to Mr.
Clawson about the shortage?

A. I believe we asked him if he was going to
furnish them.

The Court: What did he say?

A. I think he said no, because we ordered them
again too; Fanchon & Marco ordered them.

Q. By Mr. Schaefer: Isn't it a fact that Mr.
Clawson said that he would get them, and attempted
to get them, and telephoned to someone and couldn't
procure them? Don't you [118] recall that?

A. No, I don't. I say, I am a little hazy on that,
Mr. Schaefer. [119]

A. Well, it was second-handed stuff. I wouldn't
want to venture a guess on whether it was good or
bad. I know what use it had had, and so on. It was
in condition equal to the use it had had. [120]

Q. On your arrival at San Diego, you say you
showed in San Diego on schedule. How much time
did you have to erect the equipment at San Diego ?

Hagenbeck-Wallace Shows Co. 105

(Testimony of Paul Eagles.)

A. We had from the time we arrived in there on
the 25th, and all the rest of that day.

Q. An entire day; is that right?

A. Yes.

Q. You arrived at what time on the 25th ?

A. Some time in the afternoon.

Q. When did you leave Ingle wood?

A. We left Inglewood the morning of the 25th.

Q. And you arrived the afternoon of the 25th?

A. Arrived in the afternoon, whatever time it
took the Santa Fe to run us down there.

Q. When was your first performance in San
Diego?

A. Our first performance was on the night of
the 26th.

Q. Then you had approximately a day and a
half to erect your equipment; is that right?

A. Yes.

Q. You said that the performance went off in
San Diego according to schedule ? [122]

A. That is right.

Q. Were there any acts that were not performed ?

A. Well, I have the performances right here,
and I am sure they all went off.

Q. They all were performed? A. Yes.

Q. What time did you leave San Diego?

A. It was a little after 2:00 o'clock when we
pulled off the lot, and I imagine an hour or two
hours after that we left San Diego.

Q. Did you leave San Diego late?

106 Fanckon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

A. I don't know. I paid off the tractors, and
it was pretty well loaded when I went down to my
stateroom, and I don't remember whether we got
out of there late or not. I am sure we must have
gotten out rather late, because it was after 2:00
when we got off the lot.

Q. Did you have some difficulties'?

A. The tractors we had pulled us off the lot, a
very difficult lot. We had four tractors taking us
off of there.

Q. When did you arrive in San Diego?

A. About 9:30.

Q. Was that early or late ?'

A. That is a little late.

Q. Now, a wagon went off the runs. Will you
explain what runs are?

A. The runs are the things that come from the
street [123] up to the flat car, made out of wood
with cross pieces, just like a driveway, without any
floor in them.

Q. It is a driveway off of the flat car?

A. Yes.

Q. And it was a pole wagon that went off the
runs ?!

A. It went off the side of the gunwales of the
flat car.

Q. I will ask you if you didn't say to me then,
"This was due to the faulty condition of the runs"?

A. I don't believe I did.

Q. You don't believe you did? A. No.

Hagenbeck-Wallace Shows Co, 107

(Testimony of Paul Eagles.)

Q. The faulty condition of the runs —

A. Those were repaired in San Diego.

Q. Who repaired them? [124]

A. Whitey Beeson.

Q. At whose expense? A. I don't know.

[125]

Q. What was the condition of the rope in Pasa-
dena? Was it good or bad?

A. Just like any second-hand rope.

Q. Would that be good or bad ? [134 J

A. It would be medium.

Q. Do you remember telling me on the occa-
sion mentioned, "The ropes were all in very poor
condition"? Did you so state to me?

A. I can't recall it.

Q. Do you remember stating to me, " While we
had some green labor, yet the equipment itself de-
layed us tremendously"? Did you so state?

A. I don't recall that part of the conversation.

Q. Did you state to me at the time mentioned,
"I know that the elephant howdahs never arrived;
that the wardrobe [135] was in bad condition, some
entirely unusable"? Did you so state?

A. I might have. I probably told you that.

Q. Did the calliope operate on any occasion?

A. I don't know about that.

Q. Did you hear it operate?

A. I didn't hear it operate. I heard it previous
to this time. I don't think it ever operated on the
Great American Circus.

108 Fanckon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q. But it was delivered to the Great American
Circus? A. Yes. [136]

Redirect Examination

Q. By Mr. Combs: How much of a wardrobe
was there at Baldwin Park, that is to say, for use
by the circus? A. A 25 or 30-car show.

Q. In other words, there was a vast quantity of
wardrobe out there ?

The Court: We don't care about the other words.

Q. By Mr. Combs: A quantity that wasn't
necessary for use on your show?

A. That is right.

Q. And the unusable portion was what you left
behind at Baldwin Park; is that right?

Mr. Schaefer: I object to that as the testimony
of counsel.

The Court: Yes.

Mr. Combs : No I am not testifying.

The Court : Let him testify. This is not before a
jury, and I will instruct myself to disregard it, but
it takes up time unnecessarily.

Q. By Mr. Combs: The portion of the ward-
robe that was [137] left at Baldwin Park was the
unusable portion that you did not need for the
Great American Circus; is that right?

A. We left some at Baldwin Park. I couldn't
say as to that. The wardrobe man took what he
wanted.

Q. And what he took was the usable portion, in
usable condition; is that right?

A. Yes; they used it.

Hagenbeck-Wallace Shows Co. 109

(Testimony of Paul Eagles.)

Q. The kind of rope involved, on the main fall,
which broke at Pasadena, was available for pur-
chase here in Los Angeles, was it not ?

A. Yes,

Q. And, in fact, had actually been ordered from
the hardware company?

A. Well, I don't know. It was delivered in Po-
mona.

Q. But you had directed Daillard to order it
from Inglewood?

A. That is when I asked for it, yes.

Q. And it could have been purchased imme-
diately, and for immediate delivery, in Los An-
geles; isn't that right?

A. I don't know myself. I didn't make any in-
quiries.

Q. The stage that was carried by this Great
American Circus, was it like all stages, or differ-
ent from them ?

A. Entirely different than any I knew.

Q. In what respect?

The Court: I understood that this wasn't a part
of the paraphernalia. [138]

Mr. Combs: On cross examination counsel
asked — —

The Court : So we need not have that.

Mr. Combs: All right.

Q. You related in your cross examination that
the show was not ready for performance in Ingle-
wood. In saying that, did you mean the equipment,

110 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

or the personnel of the show, as distinguished from

the equipment?

A. The personnel of the performance was not
ready.

Q. That is what you meant when you referred
to the show? A. Yes.

Q. When you referred to a test that the cars
had passed, who gave that test ?

A. The railroads. We passed a test transferring
from one railroad to another. We transferred from
the Pacific Electric Railroad to the Santa Fe, to go
to Inglewood.

Q. And cars that were in unusable condition
would not be passed f

A. They won't use them.

Q. The seats that were used in this show, were
they passed by the seat inspector at Pasadena?

A. Yes.

Q. And at other places? A. Yes.

Q. They all passed inspection of the local au-
thorities on seating capacity, or the use of seats of
that nature ?

A. As to their strength and so on and so forth,
yes. [139]

Q. And safety factors?

A. Yes, sir.

Q. The condition of the lot in San Diego, can
you relate a little more about that ?

A. Well, it was a filled sandy lot, very soft.

The Court: Where did that fill come from —
dredged from the

Hagenbeck-Wallace Shows Co. Ill

(Testimony of Paul Eagles.)

A. Yes, from the sea. They pump it back over.
It was right across from the Marine Base.

Q. By Mr. Combs: Was it a suitable or unsuit-
able place for the performance of a circus ?

A. Not very suitable.

Q. What about the overloading of the wagons?
Can you state to the court anything respecting that ?

A. We loaded most of the paraphernalia of a
25-car show on 33 wagons, or a 15-car show.

Q. In other words, you were over overloaded at
least 40 per cent; is that right?

A. I don't know what percentage, but I think
we were overloaded. We had a big top the same
as a 25-car show.

Q. You testified that you employed certain ex-
perienced men as heads or bosses of certain depart-
ments. Were those the only experienced men that
were working on this show, as laborers or as equip-
ment men?

A. That list you have reference to that Mr.
Schaefer [140] read over?

Q. That is right.

A. I think it was. The experienced ones were
the only experienced ones, with the exception of a
front door man and a sideshow manager, some-
thing like that, but all of the labor was green.

Q. Now, when the equipment was delivered in
Inglewood to you, a great quantity of material and
equipment was added to it by Panchon & Marco;
isn't that correct ? A. That is right.

112 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Q. Which increased your overloading, rather
than decreasing it, at that point ; is that right %

A. Yes; some big poles from over there that the
Fanchonettes worked on, and wardrobe. [141]

PLAINTIFF'S EXHIBIT No. A-2

June 28, 1939.
Mr. Marco,

Fanchon & Marco, Inc.,
5600 Sunset Blvd.,
Los Angeles, Calif.

Dear Mr. Marco :

As per our telephone conversation this morning, I
am inclosing herewith a copy of a statement which
was made by a Stenographer in Mr. Henry Schaef-
fer's office.

This statement does not meet with my approval
as it is just a recitation of events that happened
while the Great American Circus was on the road
and I believe it should be more complete if it is to
be submitted to use in the settlement of a claim.

At this time I want you to feel that no informa-
tion will be withheld and that I will be glad to go
over the facts at any time with anybody.

With kindest regards, I am,

Very Truly Yours,

[Written in ink]

Schaefer's Letter June 16.

[Endorsed]: Filed Nov. 27, 1940.

Hagenbeck-Wallace Shows Co. 113

(Testimony of Paul Eagles.)

Recross Examination

Q. By Mr. Schaefer: You spoke of overloading,
counsel says 40 per cent, You discussed this matter
with Mr. Clawson and laid out the whole circus
with him, didn't you?

A. With Mr. Clawson and Mr. Daillard.

Q. And at that time the items of equipment and
the cars were selected, were they not ?

A. With the exception of Inglewood, I wanted
more cars and to distribute the loads over more
wagons.

Q. I am talking about Baldwin Park now.

A. Baldwin Park.

Q. The equipment was gone over and the num-
ber of cars, isn't that right?

A. That is true.

Q. And you had 50 wagons out there at Bald-
win Park, didn't you? [143]

A. Yes, about 50.

Q. And there were four trucks that Fanchon &
Marco got that they used to carry equipment, in ad-
dition? A. Yes.

Q. Isn't it the custom of all circuses to employ
some green labor from town to town ?

A. Well, yes, organizing, and when they first
open it is, some green labor.

Q. And from town to town they take some labor?

A. They usually have the same crews come back,
and they add to them.

Mr. Schaefer : All right. That is all.

114 Fanchon & Marco, Inc., vs.

(Testimony of Paul Eagles.)

Redirect Examination
Q. By Mr. Combs : How many laborers did you
have on the circus, other than foremen ?
A. Well, roughly, a couple of hundred
The Court : A couple of hundred ?
A. Yes. [144]

CHARLES W. NELSON,

Called as a witness in behalf of plaintiff, being first
duly sworn, testified as follows :

The Clerk: Will you state your name?

A. Charles W. Nelson.

Mr. Combs : We are calling Mr. Nelson for cross
examination as an adverse witness.

The Court: Proceed. We will find out where
he is.

Direct Examination

Q. By Mr. Combs: What is your present em-
ployment ?

A. I am in business myself in the producing and
booking of circus acts.

Q. How long have you been engaged in that
business ?

A. Practically a period of 35 years.

Q. Were you engaged in that business in con-
nection with the Great American Circus in 1939?

A. Yes, sir. At that time I was in association
with Fanchon & Marco as the manager of their

Hagenbeck-W allace Shows Co. 115

(Testimony of Charles W. Nelson.)
Fair Booking Department.

Q. In that connection did you have the manage-
ment of the booking of the Great American Circus?

A. I did.

Q. When did you first undertake your duties in
that respect?

A. I am not certain of just the definite length
of time [145] prior to the opening of the show, but
several months, I assume.

Q. Relate how it occurred.

A. Mr. Ralph Clawson came to me and told me
that the equipment of the Hagenback & Wallace
Show was on the market for sale or hire.

Mr. Schaefer: I don't like to interrupt, but I
am objecting to this examination as an adverse
witness. I thought counsel was trying to find out
whether he is entitled to do that.

The Court: But I haven't told him that he was.
I said we would find out.

Mr. Schaefer: I understand the witness is going
into the circus — ■ —

The Court: He has a right to do that with his
own witness. We will see whether he can cross ex-
amine him, after we get started.

A. Mr. Clawson suggested to me that the equip-
ment was for sale or hire or rental, or any basis on
which it could be disposed of, and I told him that
I would bear that in mind, and if I found anybody
that was interested I would contact him. In the
course of conversation in the Fanchon & Marco

316 Fmichon & Marco, Inc., vs.

(Testimony of Charles W. Nelson.)
office I happened to mention it to Mr. Bren and
several associates, and they evidenced interest in it,
and somehow or other brought it to Mr. Marco's
attention. And Mr. Marco sent for me and discussed
the matter, and asked [146] me to proceed and in-
vestigate how it could be purchased. Originally Mr.
Clawson set a figure of some forty some odd thou-
sand dollars, and Mr. Clawson went into detail, and
we negotiated with respect to the property, which
initially was to be a 10-car show. And in the course
of further negotiations it developed — Mr. Marco
then took it out of my hands, after the contact had
been made, and Mr. Daillard came into the picture,
and from there on they contacted Mr. Marco, with
Mr. John Ringling North, who was president of
Ringling Brothers and Barnum & Bailey Shows, and
in the course of events I was instructed to get the
show together, which I did. That was the extent of
my activities, just the performance proper.

Q. Did you go out to Baldwin Park before the
23rd of May?

A. Yes, I did. I went out one day with Mr. Dail-
lard, when the matter was first broached, and I sug-
gested that some of the wheels of the wagons ap-
peared to me as though they had been drying out
in the sun, and Mr. Clawson said, "If they have,
they will be replaced and put in perfect condition
before they are moved off the lot."

Q. When did this conversation take place?

A. This was at least six or eight weeks before
the show was opened.

Hagenbeck-Wallace Shows Co. 117

(Testimony of Charles W. Nelson.)

Q. But you didn't go out there just before the
show was opened ? [147]

A. No, I didn't.

Q. The next thing you had to do with the show
was when it was put on at Inglewood 1

A. Yes, that was my next contact with the show.

Q. Did you make any observations with respect
to the condition of the equipment at that time?

A. For used equipment, it seemed to me it was
in a condition that would be average.

Q. Was it usable or unusable?

A. I thought it was usable, from observation
and my slight knowledge of what technical details
are necessary for the production of a performance.

Q. Excepting for the time the main fall broke
in Pasadena, which was then chained to the bail
ring, was there any time when the performers were
unable to perform by reason of the condition of the
equipment? A. Not to my knowledge.

Q. And the same performers did perform after
the men had chained the block and tackle to the
bail ring in Pasadena?

A. Yes, they gave the full performance, also the
performance that night.

Q. Did you employ George Singleton as an em-
ployee of the circus?

A. Yes; I employed him as boss canvas man
with the show.

Q. When? [148]

118 Fanchon dk Marco, Inc., vs.

(Testimony of Charles W. Nelson.)

A. Oh, his duties were to start, as I recall it,
approximately a week before the show opened.

Q. When did you first employ him prior to a
week before the show opened?

A. I talked to him approximately about 10 days
prior to that.

Q. Did you have any conversation with him in
that connection?

A. Yes, I did. He called at my office a few
times.

Q. Who was present?

A. Mr. Clawson was present one time, and I
believe Mr. Daillard was at another.

Q. What was said the first time by you, and
what was said by Mr. Singleton?

A. The exact details of the conversation I can't
recall. But George told me then that he had a chance
to go north with some show up in Canada and was
waiting word from them then. I told him we were
going out, and if he thought he would rather be
with us, I thought it was advisable for him to wait
around and get the job.

Q. And what did he say?

A. He agreed to do this.

Q. Did you have any other conversation with
him?

A. Probably four or five days later he came and
said he had transportation from this show in Can-
ada, and that he was sending it back, to stay over
and work with us. [149]

Hagenoeck-Wallace Shows Co, 119

(Testimony of Charles W. Nelson.)

Q. Did you employ him at that time ?

A. Yes, I did.

Q. What was his pay?

A. His salary was to be $75 a week.

Q. Then shortly after that he went to work,
did he? A. Yes.

Q. Did he go to Baldwin Park?

A. He went to Baldwin Park and did a little
preparatory work there.

Q. Did you direct him out there ?

A. Yes. I told him to straighten up whatever he
thought was necessary so we wouldn't lose time get-
ting started when we decided to go.

Q. Now, Mr. Nelson, did Mr. Singleton ever re-
port back to you about the condition of the equip-
ment out there?

A. Well, George told me once or twice that he
thought he needed a few pieces of rope here and
there. And I said, "Well, that is just a minor detail.
Mr. Clawson may have some on hand that he will
give to you."

Q. Where did you office during that time?

A. With the Fanchon & Marco organization, in
their own office.

Q. Did you pay any rent there? A. No.

Q. And you used their equipment ?

A. Yes. [150]

120 Fcmchon & Marco, Inc., vs.

GEORGE SINGLETON,

called as a witness in behalf of plaintiff, being first
duly sworn, testified as follows:

Direct Examination

Q. By Mr. Combs : Your occupation, Mr. Single-
ton? A. Boss canvas man.

Q. Your residence?

A. 210 North Main Street, Baldwin Park, Cali-
fornia.

Q. How long have you been engaged in the busi-
ness of boss canvas man? A. About 40 years.

Q. In that connection what experience have you
had?

A. I have always been a boss canvas man.

Q. With what circuses, and during what years?

A. I can give you back from 1902 or 1903.

Q. All right. Start and list them.

A. Well, there was Sun Brothers ; Sparks Circus
for 20 years ; there was Young Buffalo, 5 years ; Al
G. Barnes; Sells-Forepaugh ; Pawnee Bill; Hagen-
back- Wallace ; Great American ; Lewis Brothers.

Q. And other circuses?

A. Cole Brothers, and others.

Q. Many others? [153] A. Many others.

Q. Did you have any connection with the Great
American Circus at about the time of its exhibition
to the public involved in this law suit ?

A. Only in the mechanical department.

Q. Will you state when you first undertook your
connection or engagement with the Great American
Circus ?

Hagenbeck-Wallace Shows Co. 121

(Testimony of George Singleton.)

A. It was along the latter part of April when
I first talked to Mr. Nelson.

The Court: What year?

A. 1939. He sent for me and hired me. I had
contracted to go to Canada, and he advised me to
cancel my contract and take their show. He said
he would be ready in a few weeks. And the 18th
of May he sent for me again and told me the show
was ready, to have it in Inglewood the following
Tuesday. That was on Thursday, and I had maybe
five days to get it ready. So Thursday afternoon
I went back and proceeded to get out the wagons
and the paraphernalia. In the meantime I hired
some men that was around the quarters, labor, and
I even sent a man to Los Angeles to pick up what-
ever men he could for me, and he brought out the
next morning about 25 or 30 men that were abso-
lutely no good, so I sent them all back. So then
he picked up two or three men, such as assistants,
sail makers, and the like, altogether experienced
men. When the show moved on the lot at Ingle-
wood I had about 16 men, that is, all told, and the
[154] night we moved off all the new men walked
away, and I had about eight men left to pack the
show. It was 8:00 o'clock in the morning when we
got the last wagons to the train. And the show was
loaded and moved the same as any other time, load-
ed light, ready to move, as it had been in the past,
but we moved on the lot in Inglewood about five
wagon loads of baggage and paraphernalia from

122 Fanchon dc Marco, Inc., vs.

(Testimony of George Singleton.)
Hollywood, so that we had to overload all the
wagons. The pole wagon, that had about three
loads; it had about 25 tons, where it ought to have
had about 10, and we packed all the wagons over-
loaded leaving there.

Q. That was due to the fact that you had re-
ceived a quantity of paraphernalia at Inglewood
that had not been transferred from Baldwin Park?

A. Mr. Nelson, when he sent me out to quarters,
to Baldwin Park, he wanted the show fitted out
with a capacity of 5,000 people, and he wanted it
loaded on 10 cars, and I told him it was impossible.
And he said, "What is the nearest you can figure ?"
And I said, "I will have to take time to figure."
And I figured about 15 wagons.

Q. Cars, you mean?

A. 15 cars, that would take about 26 wagons.
And when we finished loading the stuff we had it
all loaded in good shape, except the motor power
and trucks to move the show with. So we decided
to — Mr. Nelson or Mr. Daillard rented four trucks
that the Hagenback Show had formerly, [155] and
that was the transportation we had.

Q. They were not, however, rented from Hagen-
back-Wallace, were they?

A. No, sir. They was rented from the Pacific
Freight Lines, the people that owned them then.
And we had 10 elephants, and they helped, and four
head of stock, and even at that we never had half
enough motive power. We had a 30-car show load-

Hagenbeck-W.allace Shows Co. 123

(Testimony of George Singleton.)
ed on 15 cars. I had handled the same show, with
the same amount of material and stuff, with the
Hagenback Shows, with 35 cars, and they allowed
me 60 men, working men, besides the other help
around, whereas I was moving this show, you might
say, with 8 or 10 men. That is where the trouble
come. And when we got to Pomona the show had
just begun to click and move like it should move ; it
was just beginning to move, and the railroad train-
master told me that night, "You are going to quar-
ters tonight," and I said, "That is impossible,"
and the next morning — that was about 11:30 or a
quarter to 12:00 that night, and when I was called
the next morning I was in Baldwin Park. So the
next move was to unload the train and take the
show back to quarters. And through Mr. Daillard
— he says, "Just hold your men together the best
you can." He was going to reorganize and finish
these dates. So I did. And finally, a day or two
after, I was called to Mr. Marco's office, and I went
into his office, and he had a lawyer and stenograph-
er waiting to take an affidavit from me with [156]
relation to the paraphernalia, whereas I thought
all the time that it was to re-open the show, and
as soon as I found out what they was trying to do,
I didn't have much more to say, and I walked out.
So they mailed me an affidavit to sign, which I
turned over — I refused to sign it, and turned it
over to Mr. Clawson, and it was altogether wrong;
some of the stuff that was in there I never even

1 24 Fanckon & Marco, Inc., vs.

(Testimony of George Singleton.)
thought of. The next move I made, I went back
to quarters, where I was in charge out there, my
time ceased, and a man by the name of Dusty
Ehodes finished putting the show away. And I
think the second day after they paid off the work-
ing men. Of course, I drew time for the time I
was in their employ and gave a receipt for, I think,
$122, for the time I was employed. Then I asked
the cashier about by contract for the season. Well,
he says I would have to take it up with the office.
So I went out to find Mr. Nelson, and he was out
of town or somewhere, and I spoke to someone else
in the office, and "Well, you have to see Mr. Nel-
son.'' So finally it went on and I tried two or three
times, and I would have to see Mr. Nelson, and that
is the way my case stood, and I was out of the
picture.

Q. When you went out to Baldwin Park when
Mr. Nelson first employed you, wThat did you do
out there?

A. I proceeded to get the wagons out and get
material out, etc., chairs, poles, rigging, canvas; I
proceeded to get the show together, to load it in
wagons to go to [157] Inglewood. Then I had an
order to put the show up in winter quarters.

Q. Let me ask you about putting it up in winter
quarters. Do you mean that you set it all up and
tested it and tried it out %

A. Do you know just exactly how much wagon
space it would take to load

Hagenbeck-W.allace Shows Co. 125

(Testimony of George Singleton.)

Q. Did you lay out the falls?

A. I put the big top up. It was all up in the
air, and they came out and stopped me and had me
tear it down and load it to go to Inglewood.

Q. When did you put it up ?

A. I think it was Friday, finished it Friday
night some time after dark.

Q. That was the same equipment you loaded to
go to Inglewood? A. Yes.

Q. And the same equipment the Great Ameri-
can Circus used? A. Yes.

Q. And it was all up there, and you looked at it
in the air, set up, before you left Baldwin Park?

A. Yes, sir.

Q. Did anyone else look at it with you?

A. Why, Mr. Clawson went over some of this
stuff, and Mr. Daillard was around there, and Mr.
Marco was all around, [158] looking at the wagons,
but I personally supervised the sorting and load-
ing of all the stuff myself.

Q. Did you look at the wagons before they left?

A. Yes, I helped pick them out.

Q. What was the condition of those wagons?

A. Ordinarily speaking, they was in fairly good
shape, good for the purposes used for.

Q. Were they in such condition that they were
suitable for the transportation of the circus?

A. Yes.

Q. They were, of course, second-hand or used
equipment ? A. Second-hand.

126 Fanchon & Marco, Inc., vs.

(Testimony of George Singleton.)

Q. Did you set the equipment up in Inglewood?

A. Yes, sir, I did.

Q. Did you have any difficulty in that connec-
tion?

A. Not a bit in the world, with the exception
that we were shorthanded on labor. We had a
whole day to do it. We had it all up in the after-
noon.

Q. Of the first day you arrived?

A. Of the first day we arrived. But I would
have had it up earlier than that, but we got in
town that morning at about 5:00 o'clock and moved
this stuff to the lot, and about 6:00 o'clock I had
the lot all surveyed ready to go to work a little after,
and I had orders not to move or put anything up
until Mr. Marco came to the lot, through Mr. Claw-
son. The understanding was, the contract was, they
was [159] to pay, oh, I think it was — whether it
was five or ten weeks in advance, for the rent of
the stuff. I lost about two hours waiting there, and
later on Mr. Marco, I think it was, or Mr. Nelson,
and I can't say who else, Mr. Clawson, was all out
in front of the lot, and finally Mr. Clawson come
to me and said he had a wire from Mr. Eddy say-
ing to turn over the stuff to the Great American
Circus, and he was going ahead and put it up, and
I lost two hours that morning waiting on that.

Q. Then you did go ahead and put it up?

A. Yes.

Q. Now, did you have any trouble with the
equipment at San Diego?

Hagenbeck-Wallaoe Shows Co, 127

(Testimony of George Singleton.)

A. At San Diego the only trouble we had there,
it was a lot below tidewater, and they had pumped
a lot of sea sand in, and every time the tide would
raise the water would come up, and every wagon
that was pulled in off the highway would go right
to the wagon bed. Finally we employed two cater-
pillar tractors, 60 's or 80 's, I think they called
them, or 80 or 90 horse power, but the very largest
tractors that could be found, and it took two of
them tractors to pull each and every one of the
wagons, one at a time, and just drug them right
through, putting them in position to unload. And
those wagons stood up under that treatment, pull-
ing in, and coming off we had four tractors coming
off. And it took me from along about 2:00 [160]
or 3:00 o'clock in the afternoon until 11:00 o'clock
that evening to get the wagons on the lot, and we
wasn't going to show until the next afternoon, and
all the men was all worn out, and I sent them to
bed. And they began work at daylight, and the
show was all up, with the exception of the stage.
We had a big caterpillar pushing dirt around, or
trying to level it, and it took them all afternoon
to get that stage straightened out. They had a man
there from Los Angeles, from the Fanchon & Marco
office, looking at it. It took them all afternoon.
And they was supposed to give a rehearsal. And
they were able to give the show the next day.

128 Fanchon & Marco, Inc., vs.

(Testimony of George Singleton.)

Q. Did you have any trouble with the equip-
ment at Santa Ana?

A. Well, we got in there late, and the top was
all ready to go up along about 1:00' o'clock, I sup-
pose, along about 1:00 o'clock. And the wagon that
brought the side poles for the big top, was loaded
with plank and side poles, and it was necessary to
have them in order to raise the big top, that had a
hot box that held it up, and finally it got in along
about 3 :00 o 'clock, and we was about ready to open
the doors. They could have opened the doors at
3 :00 o 'clock, or possibly earlier, but one side of the
show was up, and the back end was ready, and they
could open the doors at 3:00 o'clock. But for some
reason, I couldn't say what it was, from the front
they called the show off. They gave a [161] night
performance. I sent the men to aid them, and came
back and finished putting the short side grandstand
at the front end up.

Q. What was th£ reason for being late in ar-
riving at Santa Ana from San Diego ?

A. It was a long haul, about a 5-mile haul, in
the first place, from the lot down, and it was along,
I should say, about 1 :30 when we got to the train,
and everything was off the lot then, and they had
a bad place to load; it was uphill, and a curve in
the track, and we had four horses and two elephants
to load that heavy wagon, and finally I think they
got a tractor to help load the train, and I went to
bed about 2:00 o'clock.

Hagenbeck-Wallace Shows Co. 129

(Testimony of George Singleton.)

Q. Had they left when you went to bed at 2:00
o'clock? A. No.

Q. What would you state was the cause of the
late departure from San Diego?

A. I couldn't say whether it was the fault of
the railroad company. I think it was loaded be-
tween 2:00 and 3:00 o'clock. But lots of times,
whenever it is loaded, it is turned over to the rail-
road company, and will stand for two or three hours
at a time.

The Court: He is surmising.

Mr. Combs: That is right.

Q. By Mr. Combs: Now, what was the cause,
if you know, for the delay in getting the show up
in Santa Ana? [162] A. I just stated.

Q. The causes you have stated?

A. Yes, about the wagon being late and we
couldn't get the poles.

Q. Can you state how long that wagon with the
hot box delayed you, if you know?

A. I couldn't say, because I didn't — « —

The Court: Well, that ends it, if you don't
know.

Q. By Mr. Combs: You didn't observe it your-
self? A. No, sir.

Q. After the night show in Santa Ana what oc-
curred ?

A. It was loaded to go off the lot, I guess, around
midnight, and I rode this same wagon we had
trouble with in the morning.

130 Fcmchon dc Marco, Inc., vs.

(Testimony of George Singleton.)

Q. What did you observe in that connection?

A. We got about two blocks from the train, and
this same wagon had another hot box. I said to the
driver, "I will go and get a blacksmith and take
the wheel off," and I brought him down, and it
took him about 30 or 40 minutes to take the wheel
off.

Q. Did that delay the departure of the train
any?

A. No, that didn't. There were others behind
that..

Q. There were others behind that that were not
loaded until after that was loaded? A. Yes.

Q. Did you get away in seasonable or early time,
out of [163] Santa Ana, for Pasadena ?

A. Well, I couldn't say, because after that wagon
came I went to bed.

Q. When did you arrive in Pasadena ?

A. It wTas along about noon, or between noon
and 1:00 o'clock.

Q. At the railroad track?

A. Downtown, yes.

Q. How far was the lot from there ?

A. About five miles.

Q. Is that a short or a long haul ?

A. An unusually long haul.

Q. What was done when you arrived?

A, I got off and got into a taxi and went to the
lot and surveyed the lot, and waited there about,
fully two hours, before I got the wagons.

Hagenbeck-W&llace Shows Co. 131

(Testimony of George Singleton.)

Q. You finally got the wagons?

A. I finally got one wagon, and then they com-
menced to come. Then along, I think when I was
raising the big top, a fall became fouled, and when
I hooked the elephant to it, the rope which fouled
in the block, it cut the rope off. That was the lead
line on the ground, the one that goes through the
snatch block. And so I had to splice this rope.

Q. Did you do that personally?

A. Yes. And proceeded to finish raising the can-
vas on the big top. [164]

Q. Then what occurred, if anything?

A. Well, there was nothing particularly oc-
curred after that. It was very late then, and it
must have been after 2:00 o'clock. So I was ready
for the doors along — we could have opened the
doors at 3 :30, because I had all the front side lum-
ber grandstand back in there, and we could have ad-
mitted the people. I sent all my men to eat, and
in the meantime Mr. Eagles came in to me and says,
"The show is off. They called it off for the after-
noon."

Q. About what time was that?

A. Along about 4:00 o'clock.

Q. Was the tent up at that time?

A. The tent was up, and the inspector had been
in and inspected it and put his O. K. on it.

The Court: You say, "I spliced the rope."
What was the condition of the rope where it sepa-
rated?

132 Fanckon & Marco, Inc., vs.

(Testimony of George Singleton.)

A. The rope was in usable condition. I bought
the rope myself and had been using it. I had been
handling this property since 1937, and had replaced
new rope from time to time, and rebuilt seats and
poles, and whatever was necessary.

The Court: Well, you have answered the ques-
tion.

Q. By Mr. Combs: How long did that splicing
of that rope take you? A. About 15 minutes.

Q. How long did the breaking of that rope de-
lay the [165] putting up of the tent ?

A. Not more than 25 minutes,

Q. About 25 minutes'? A. Yes.

Q. After Pasadena you went to Pomona ; is that
correct? A. Yes, sir.

Q. Anything out of the ordinary or unusual oc-
cur there?

A. No, sir. We got in there early in the morn-
ing. And this overloading stuff — we had three of
Mr. Eagles' trucks, which took this extra staging
and poles and a lot of extra baggage and stuff that
we didn't have room for on the wagons — they took
that across country in the trucks, and got in there
early, about 7:00 o'clock in the morning, and the
show would have been ready at noon, but that stage
was holding it back.

Q. You observed that stage being erected, I sup-
pose ? A. Yes,

Q. How long did it take, approximately, to erect
that stage?

Hagenbech-Wallace Shows Co. 133

(Testimony of George Singleton.)

A. Well, never less than three hours, sometimes
longer. It depends on what kind of ground they
had.

Q. How long was the longest time you recall?

A. At any time I don't think it was over three
and a half or four hours.

Q. Was that an unusually long time for the erec-
tion of the stage? [166]

A. 30 minutes — they should put it up in 30 min-
utes.

Q. Is that about the allotted time allowable for
such a purpose in connection with good manage-
ment of a circus? A. Yes.

Q. In connection with the labor involved in this
circus, did you ever get a full crew of men?

A. No, sir.

Q. What was the most men you ever had in your
department ?

A. At one time I think it was 20 men, and I
had them in the morning, and in the afternoon I
had about 10 or 12. The labor agent would bring
them in in the morning, and they would eat two or
three meals, and in the evening they would be gone.

Q. Were they green or experienced help?

A. Well, I will tell you just who they were. He
went down on Fifth Street, on Skidrow, and em-
ployed drunks and everything else up there that did
not know what it was all about, and they wasn't
in good condition to work, in the first place, and I
told the labor agent

134 Fanchon & Marco , Inc., vs.

(Testimony of George Singleton.)

The Court: Never mind. How many does the
show require?

A. Ordinarily a show of that size, 60 men would
be a full crew.

The Court: And you had how many?

A. At no time over 20 men. [167]

Q. By Mr. Combs : You employed some boys, of
course; is that correct? A. For tickets, yes.

Q. And they were inexperienced?

A. They were Italians and Japs and so forth.

Q. I want to ask you a question. Were the
wagons involved in this show in good condition and
ready for use at the time they were delivered at
Inglewood ?

A. They was all picked out and loaded?

The Court : Answer the question.

A. Yes, sir ; yes, sir, they were.

Q. By Mr. Combs : Is that also true of the tent
rigging, blocks, falls and chairs?

A. I inspected them myself.

Q. The answer is yes? A. Yes, sir.

Q. Is that also true of the train flat decks and
runs?

A. I couldn't say. That was out of my depart-
ment.

Q. Did you inspect the wardrobe ?

A. That was out of my department.

Q. Did you inspect the calliope?

A. It was out of my department.

Hagenbeck-Wallace Shows Co. 135

(Testimony of George Singleton.)

The Court: You inspected everything in your
departments A. Yes, sir.

The Court: And you have told us about it?

A. Yes, sir. [168]

The Court: Well, that ends it.

Mr. Combs : Just a moment. I think that is all.

Q. By Mr. Combs: Before you left Baldwin
Park did you have any discussions or activities in
connection with the making of a list of stuff neces-
sary for the production of this circus ?

A. Yes, I made a list out and gave it to Mr.
Clawson, the stuff we were supposed to use.

Q. That was when you first went out there?

A. It was after I got the stuff picked out.

Q. About what day was that?

A. That was on Friday, the 19th.

Q. And you handed Clawson a list of the stuff
you wanted at that time?

A. The stuff I was going to use, that belonged
to the Hagenback- Wallace Shows.

Q. Do you know where that list is now?

A. Well, all I could say, Mr. Clawson — —

Q. You don't know? A. I don't know.

Q. You never saw a copy of it?

A. No, sir.

Mr. Combs: That is all.

The Court: Cross examine. [169]

136 Fanchon & Marco, Inc., vs.

RALPH J. CLAWSON,

called as a witness in behalf of plaintiff, being first
duly sworn, testified as follows:

Direct Examination

Q. By Mr. Combs: Mr. Clawson, what is your
present occupation?

A. With the Amusement Corporation of Amer-
ica.

Q. Is that a circus ?

A. Circus and carnival combined.

Q. How long have you been engaged in the busi-
ness of — or in what capacity are you with them?

A. Manager.

Q. Have you heretofore been engaged in the
capacity of manager of circuses?

A. Yes, sir.

Q. For what length of time ?

A. Since 1929.

Q. Relate your experience to the court in con-
nection with your activities for circuses.

A. With circuses, I have been what they call a
lot superintendent, four years, 24 hour man for the
show. After that I became assistant manager of
John Robinson's Circus: later assistant manager of
Hagenback- Wallace ; and then I became manager
and assistant manger of the Ringling Show. Then
I was transferred to Baldwin Park, [177] Califor-
nia, as manager of winter quarters of the Hagen-
back-Wallace Circus. At the present time I am
with the Amusement Corporation of America.

Hagenbeck-Wallace Shows Co. 137

(Testimony of Balph J. Clawson.)

The Court: What is your present title and em-
ployment ? A. Manager.

The Court: For whom?

A. Amusement Corporation of America.

The Court: Proceed.

Q. By Mr. Combs: Now, did you have some
occasion to contact Fanchon & Marco, or their rep-
resentative, respecting the Great American Circus?

A. I did.

Q. When was that, first?

A. That was along in the first part of May, I
would say, in 1939.

Q. Whom did you contact on that occasion?

A. Charles Nelson.

Q. What was the occasion?

A. Trying to rent or lease property from them.

Q. Hagenback- Wallace ? A. Yes.

Q. Where did you first contact him?

A. In the office on Sunset Boulevard.

Q. Of Fanchon & Marco? A. Yes, sir.

Q. Who was present? [178]

A. The first few visits we was by ourselves.

Q. What was said by you and what was said
by Mr. Nelson?

A. I told him we had properties for rent, con-
sisting of elephants and circus equipment, all ex-
cepting canvas, and Mr. Nelson said they would
probably be in a position to rent some of this stuff
the coming year for a circus, and so I told him I
would make him a deal any time he was willing to

138 Fanchon & Marco, Inc., vs.

(Testimony of Balph J. Clawson.)

go ahead. He called me back one day and said, "Go

ahead and make up a list."

Q. How long was that

A. From two to three weeks, I would say; two
weeks, I would say.

Q. What conversation did you have with him
at that time?

A. Well, we talked mostly about equipment, how
big a show he would want, and what equipment he
would need, and so forth.

Q. Just the two of you present? A. Yes.

Q. Where did the conversation take place?

A. That was on Sunset Boulevard also.

Q. And that terminated without any definite ar-
rangement being made? A. Yes.

Q. Did you have any conversation after that?

A. Mr. Daillard was the next.

Q. Where was that? [179]

A. At Fanchon & Marco's office.

Q. About howT long before the date of the con-
tract involved in this case ?

A. I would say a week, approximately.

Q. That was, then, approximately the 15th of
May, 1939? A. Somewhere along in there.

Q. Who was present at that time ?

A. Mr. Daillard was all, that day.

Q. Just he and you? A. And Mr. Nelson.

Q. What was the conversation?

A. We was trying to arrange a show, and they
wanted a 10-ear show, but they wanted seating

Ragenbeck-Wallace Shows Co. 139

(Testimony of Kalph J. Clawson.)
capacity of 5,000 seats. And we explained to them
that it would be impossible for them to load and
carry that much equipment on 10 cars. So they de-
cided that they would take their people and feed
their people at hotels or cafeterias, and they
wouldn't need the cook house, so that would elimi-
nate a lot of train space and wagon space. Later on
they decided they would have to have a cook house
and they would feed them on the lot. So it ended
that day. And the next morning Mr. Bren — I met
him, he came into the picture, and we started to
deal then. The New York office did most of it
through long distance telephone.

Q. You had no authority at that time to make a
contract with Hagenback- Wallace, did you'? [180]

A. No, not with the consent of the New York
office.

Q. In fact, in this case the contract did come out
of the New York office on the 22nd of May f

A. Yes, the 22nd or 23rd.

Q. When it was executed? A. Yes.

Q. You had that conversation about the 15th,
and then you had a conversation the next day with
some representative of Fanchon & Marco %

A. Yes, we had conferences every day, two or
three times a day.

Q. Right up to the time of the delivery of the
stuff at Inglewood? A. Yes.

Q. Who were those conferences mostly between,
Mr. Clawson?

140 Fanchon & Marco, Inc., vs.

(Testimony of Kalph J. Clawson.)

A. I had never met Mr. Marco until we started
to deal with the New York office, and then he
came in.

Q. What was the occasion for your meeting
Marco ?

A. Mr. Marco said that he thought I didn't want
to rent the property and I was holding up the con-
tract.

Q. When did this take place %

A. I think that was on a Wednesday before we
started to work on Friday.

Q. That was about —

A. This was a couple of days before the con-
tract. [181] I asked to meet Mr. Marco, and we had
a meeting in his office, and I told him that we would
wire the New York office saying that I approved
of it. Mr. Marco sent the wire out of his office. And
then later on in the day they started further calls
to New York, and I think the contract was exe-
cuted and made from there, or with the representa-
tives in NewT York, and they telephoned me from
New York what equipment I should give them.

Q. Did they give you in their telephone conver-
sation a list of the equipment contained in the con-
tract ?

A. They gave me a list, and the next morning
they came through with a wire confirming what I
should give, and the contract came through a couple
of days later.

Hagenbeck-Wallace Shows Co. 141

(Testimony of Kalph J. Clawson.)

Q. What were you doing out at Baldwin Park
during this time?

A. I had charge of the winter quarters, looking
after rental of the property and trying to secure a
livelihood for us.

Q. Was anyone out there doing anything with
relation to this Great American Circus ?

A. At that time ?

Q. Yes. A. Mr. Eagles was there.

Q. From about the 19th of May on?

A. I would say the 19th, yes, and Mr. Daillard,
both was there. They wTould come early in the morn-
ing and stay [182] late at night.

Q. What did they do?

A. They selected property, and we would look
over equipment, and we would decide on one wagon,
and of course we would figure the space, and we
was all working together. Then we changed the
wagon lists around, and spent considerable time
figuring what wagons we would have to have to
hold the equipment.

Q. And you finally delivered six or seven wagons
in excess of the number called for in the contract?

A. Yes. I think, if I remember right, it was
nine wagons over. At the last moment Mr. Daillard
— previous to that Mr. Daillard had hired wagons
from a firm named Potter, in Alhambra, what was
known as the Springer Wagon, a wagon for the
light plant and two canvas wagons, which was for-
merly the property of Hagenback- Wallace, and this

142 Fanchon & Marco, Inc., vs.

(Testimony of Balph J. Clawson.)
party out there bought the property.

Q. It didn't belong to you at that time?

A. No. So the day before we was supposed to
leave Mr. Potter cancelled his agreement with Mr.
Daillard and me also. So we had to get extra wa-
gons and rearrange our whole load then. So we
gave them additional wagons.

Q. You did that without authorization from New
York, on your own motion ?

A. Yes, on my own motion.

Q. And on their request? [183]

A. On their request,

Q. And that amounted to approximately nine
additional wagons? A. Yes.

Q. The contract did not call for a cook house?

A. No.

Q. And you just gave them that of your own
motion?

A. Yes, they wanted to take it, like the ladders,
the swinging ladders; I had no contract for that.

Q. At their request?

A. Yes, on the request of Mr. Daillard and Mr.
Eagles.

Q. Now then, you did a lot of work around there
during that week ?

A. Night and day, yes, sir.

Q. To get this stuff in condition?

A. That is right.

Q. Did you do any painting of the wagons?

A. Yes.

Hagenbeck-Wallace Shows Co. 143

(Testimony of Kalph J. Clawson.)

Q. You painted in " Great American Circus",
instead of whatever was on there before ?

A. We lettered all the wagons " Great Ameri-
can Circus," and we hired a company in Baldwin
Park to come up and spray the wagons and letter
them " Great American Circus." We also painted
the train, the cars, which said Hagenback & Wal-
lace. We went over it for them in color. The color
was selected by Mr. Eagles. [184]

Q. You spent a considerable sum of money in
that connection?

A. I would say on paint alone we run consider-
ably better than $500.

Q. Now, you had an opportunity to examine
these wagons yourself, did you not? A. Yes.

Q. And you knew of their condition?

A. Yes.

Q. With respect to the same, and as to the 20
wagons that wTere contained or referred to in the
contract, when they were delivered over at Ingle-
wood, California, were they in good condition and
ready for use?

A. They was in usable condition and could be
used, yes.

Q. And they were used wagons?

A. They were used wagons, yes, had been on
the road. Some of the wagons I helped build my-
self.

Q. Was that also true of the condition of the
tent rigging, blocks, falls and chairs?

144 Fanchon & Marco, Inc., vs.

(Testimony of Kalph J. Clawson.)

A. It was in good condition, but had been used.

Q. Was that also true of the train flat decks
and runs?

A. There was one or two places on top of one
of the decks was a little bit bad, so Mr. Daillard
and I, we looked it over out at Baldwin Park, and
he said, "Well, we will get that over in Inglewood,"
and we fixed that up down at San Diego, and when
the report on the train come from the [185] Pacific
Electric or the Santa Fe, they come out and give
us a clearance on it.

Q. Inspected it and tested it for operation?

A. Yes. And I am pretty sure Mr. Daillard
was there, because he called me — I was in Mr. Gar-
rett's office downtown, and Mr. Daillard telephoned
in to me that the inspectors would like to have me
out there when they made the inspection.

Q. What was the condition of the calliope when
it left Baldwin Park?

A. I think it was usable.

Q. What occurred with relation to the calliope
when it was attempted to be moved from the wagon
onto the bandstand?

A. It dropped. We had property boys that
dropped the calliope.

Q. After that had been taken off of the train
at Inglewood?

A. Yes. This calliope rode in a large wagon,
and the back end had a large endgate, and they

Hagenbeck-Wallace Shows Co. 145

(Testimony of Ralph J. Clawson.)
had these boys there, and they put them on unload-
ing this, and they dropped this piece of equipment.

Q. And it did not play for the rest of the term
of the circus? A. No.

Q. Did you know anything about the elephant
howdahs ?

A. Yes. We had altogether at Baldwin Park
12 howdahs, [186] and there was four or five of
them over at M. G-. M. Studio, and they was making
a picture over there — I think the name was "Lady
of the Tropics,'' with Hedy Lamarr. So after the
howdahs went over there, Mr. Rogers, the art di-
rector, decided that they would build their own
howdahs, something more elaborate, and so all the
howdahs was laying over there, and the elephants
that Mr. Eagles and Mr. Daillard selected did not
carry howdahs anyway.

Q. Was anything ever said about these elephant
howdahs ?

A. They asked for them, said just have them
around in the back here, but they wanted the larger
elephants.

Q. Did they ever ask that they be delivered'?

A. Yes.

Q. When was that?

A. I believe in Inglewood, and Mr. Eagles said,
"I will go out and pick them up in one of my
trucks, at the studio."

Q. And as far as you were concerned, you were
not directed to get those howdahs?

146 Fanchon dc Marco, Inc., vs.

(Testimony of Kalph J. Clawson.)

A. By nobody, no, sir.

Q. How many howdahs were included in that
contract ?

A. Well, you see — I will explain that to you.
We have 23 elephants, and first Mr. Nelson selected,
he selected the elephants, and said he wanted those
elephants, and we had to give him smaller elephants
to go in our supposed number, so he selected those
elephants, and you have to break an elephant to car-
ry a howdah, and Mr. Daillard [187] was out there
and figured, "We will have to have a lot of power
around the show, so we had better take those bigger
elephants, and just so we have blankets for them
it will be all that is necessary."

Q. They would not carry howdahs ?

A. No.

Q. They were not trained to do that?

A. No.

Q. Did you have an opportunity to examine the
wardrobe? A. I did, yes.

Q. What was its condition f A. Usable.

Q. Usable? A. Yes.

Q. What was the condition of the sleeping
cars?

A. The sleeping cars had mattresses, and they
was clean and in good condition.

Q. But respecting the sheets, pillow cases and
curtains, have you anything to relate to the court
in that connection?

Hagenbeck-Wallace Shows Co. 147

(Testimony of Ralph J. Clawson.)

A. They wasn't fully equipped on those, not with
sheets and blankets, which wasn't customary, ac-
cording to our contract; they wasn't supposed to
be equipped.

Q. Were you supposed to do that*? A. No.

Q. In the show business is it customary to rent
the cars equipped with blankets, sheets and pillow
cases? [188]

A. No, that is not the custom. I am going to
illustrate. Last week I rented a car from Del Mc-
Coy, and all we had in it was just a mattress, and
we never have blankets or sheets or pillow cases.
We have the pillowTs, but not the — we furnish pil-
lows and mattresses only.

Q. And in the circus business that is generally
understood? A. Yes, sir.

Q. You arrived with all your equipment at
Inglewod; is that correct? A. Yes.

Q. Of course, exclusive of the elephant howdahs
referred to?

A. I think that is what wTas missing.

Q. Nothing was said about that at Inglewood?

A. Not a word.

Q. Now then, what occurred when you arrived
there, as far as you were concerned?'

A. After the equipment arrived there that morn-
ing I wired New York for advice, owing to the terms
of the contract — I didn't pay much attention to the
erecting of the equipment.

Q. It was all erected, however?

148 Fanchon & Marco, Inc., vs.

(Testimony of Ralph J. Clawson.)

A. Yes, all put up there. So they told me I was
supposed to get another payment down at Ingle-
wood.

Q. How much? [189] A. $2500.

Q. Did you get it? A. I did not.

Q. Did you have any conversation with Marco
about it? A. Mr. Marco and Mr. Daillard.

Q. What was that conversation?

A. I asked them, after the opening performance,
about the money, so Mr. Marco says, "Yes!, we will
go out to the wagon and get it." So we started, and
him and Mr. Daillard went in conference, and they
said, "We will give it to you in San Diego."

Q. Was there any further conversation about
it then? A. Not that night.

Q. Did you have any conversation at the same
time about the notes?

A. The notes, they said, "Yes. we will give you
the notes. Come in the wagon and we will give them
to you when we get to San Diego in the morning."

Q. What else transpired prior to the lime you
left Inglewood, respecting you and Fanchon &
Marco ?

A. Mr. Eagles and Mr. Daillard, they came over
and asked me to help Mr. Nelson put the perform-
ance together.

Q. Do you know what the occasion for that was ?

A. They was having some trouble getting the
acts in the big show.

Hagenoeck-Wallace Shotvs Co. 149

(Testimony of Ralph J. Clawson.)

Q. That was in the matter of the production of
the show [190] itself'?

A. The performance, the production, yes.

Q. Will you relate just what that trouble was?

A. Mr. Marco came to me and said, " I have had
everybody else around here this morning trying to
get me a rehearsal/' and he said, 'Can you get me
a rehearsal/' and I said; "I will be very glad to
help you." So we started in and got a skeleton re-
hearsal, about 35 or 40 minutes. And then Mr.
Marco and I personally rehearsed the balance, with
his suggestions. So he said, "I would like to have
you go with us and help us put this performance
on each day, the act."

Q. What did you say to that?

A. I said, "All right, I will try to make it."

Q. Was anything said respecting your salary?

A. Yes. He said they would give me $50 a week.

Q. In what capacity?

A. Equestrian director.

Q. What did you say then?

A. I told him that I was on the pay roll of the
people in New York at that time, and Mr. Eagles
said it was all right, "You will have additional ex-
pense, anyway," so I said I would accept it.

Q. From that time on you acted as ringmaster?

A. That is right.

Q. Until it closed? A. Yes. [191]

Q. Did you receive your payments?

A. I did.

150 Fanckon & Marco, Inc., vs.

(Testimony of Ralph J. Clawson.)

Q. $50?

A. Yes, sir, that is, right from Baldwin Park.

Q. From Roy Wolff? A, The treasurer.

Q. The treasurer? A. Yes.

Q. After the show was closed, in Baldwin Park?

A. Yes.

Q. As soon as you undertook the job as ring-
master, the performance went off in Inglewood?

A. Yes, sir.

Q. And you went to San Diego? A. Yes.

Q. And what transpired there?

A. At San Diego one of the conditions — I re-
member the road wTas in very bad condition, and Mr.
Eagles went ahead with the train, and I drove my
car through, and I think I got in town at 6:00 or
7:00 o'clock at night, just after the day they closed
in Inglewood, and there was a lot of sand there, and
so Paul said, "We are going to work until it gets
good and dark and put the show up in the morning."

Q. Was that done ? A. That was done.

Q. Did you see Mr. Marco down there? [192]

A. I see Mr. Marco the following day, yes.

Q. Did you have any conversation respecting
the $2500 and the four notes? A. Yes.

Q. What was that?

A. Mr. Marco — we was sitting in the seat to-
gether, and he said, "Yes, we are going to give it
to you." He said, "Do you know anything about
our contract, how far up north we are going?" And
I said I had no information of this contract. And

Hagenbeck-Wallace Shows Co. 151

(Testimony of Ralph J. Clawson.)
he said, "We are not very well pleased with some
of the contracts we have made up north." I guess
he was referring to the northern part of the state.
He said, "We practically give the show away up
there some places," and he said, "I doubt if this
thing will ever pay. We can't take in any money
under these conditions." And so I asked for my
$2500 again, and he told me, he says, "We will give
it to you," and, well, I didn't get it.

Q. Did he say when?

A. He didn't say, Mr. Marco, until Pasadena.
The rest of my conversations was always with Mr.
Daillard. He was supposed to be the executive chief.

Q. The next conversation, where was that, with
Daillard? A. That was in Santa Ana.

Q. When? A. Following after San Diego.

Q. What was said? [193]

A. I said, "I must have that money to send in
to New York." And so Mr. Daillard said, "Well, we
have spent quite a bit of extra money repairing
some of this equipment," and he said, "We will
take that out of the first payment." I said I wasn't
promising to do that. So at Pasadena, being a holi-
day, things was more or less confused over there,
and Mr. Marco was there in the afternoon, and I
think I talked to him a little while.

Q. At Pasadena? A. At Pasadena.

Q. Then that Daillard conversation that you just-
related was at S'anta Ana, or, first, the Marco one
at San Diego?

152 Fanchon & Marco, Inc., vs.

(Testimony of Ralph J. Clawson.)

A. San Diego, Daillard, yes.

Q. And Pasadena?

A. And at Santa Ana I talked to Mr. Daillard
about the money, but I didn't ask Mr. Marco for it
at Pasadena, and the next day the show closed.

Q. You had no conversation at Pasadena?

A. No.

Q. Did you say anything at Pomona?

A. I asked Mr. Daillard for it three times dur-
ing the morning and afternoon performances.

Q. What did he say?

A. He said, "We are going to straighten this
up right away in New York." [194]

Q. That was the last conversation?

A. I wired our New York office for information
that afternoon, and that night the show closed.

Q. Did you ever make any further demand on —

A. I went back to see Mr. Marco at his office
the next day after the show closed, and talked to
him about it some.

Q. What was said by you and by him?

A. I asked him, "What are we going to do
about the payments, Mr. Marco?" And he says, "I
don't know." He says, "The show is not on the
road," and we had a lot of trouble, and there was
some talk of the show reorganizing, and of course
it never materialized.

Q. Did he offer you a job if they reorganized?

A. Yes, he talked — said he would like to have
me.

Hagenbech-Wallace Shows Co. 153

(Testimony of Ralph J. Clawson.)

Q. The show went off on schedule at San Diego.

A. Yes.

Q. And at Santa Ana it was delayed, or did you
miss the matinee?

A. At Santa Ana I think the matinee was called
off by the management.

Q. Did you have occasion to observe the reason
for the calling off of that afternoon performance?

A. I didn't, really. Over there it seemed to be a
delay about getting the equipment up on the lot.
They was moving around rather slow and seemed
short-handed. I would say that was the cause of it.

[195]

Q. What can you state about the experience of
the help?

A. Well, the heads of departments was very
capable men.

Q. How about the general rank and file of the
workers ?

A. Well, they was a very poor class of men,
much more unusual than you see around a circus. We
most generally hire young boys, around about 25
or 30, and they do all right, and we had men more
like 50 or 60 years of age, and people were going
and coming over there

Q. What about the condition as to loading of
the circus? Did you have sufficient wagons to han-
dle all equipment?

A. I don't think they did until they took on ex-
tra equipment in Inglewood.

154 Fanchon dc Marco, Inc., vs.

(Testimony of Ralph J. Clawson.)

Q. How much extra equipment did you take on
there ?

A. We had to make a whole wagon complete
for the Fanchonettes. They have got a big involved
act. I think there were 24 girls, and every one
carried a lot of stuff, and the stage came on there,
and we had all the trunks that come in for those
big acts, that never come to Baldwin Park. Most
all that was added.

Q. Did that result in overloading?

A. To a certain extent it did, yes.

Q. In Pasadena did you have occasion to ob-
serve the working of the main fall there ?

A. I noticed they got the line fouled once or
twice there. [196]

Q. There were elephants pulling that line?

A. They pulled the cable. The cable goes through
the block, and sometimes the cable will foul.

Q. Has an elephant sufficient strength or power
to pull a rope like that in two?

A. An elephant don't know his strength when he
starts to pull.

Q. You believe they could pull the main fall in
two, though?

A. Yes, I believe he could, very easily.

The Court: You say an elephant is the motive
power ?

A. That pulls the fall up, your Honor?

The Court: And the rope got fouled?

A. It got fouled in a block.

Hagmbeck-Wallace Shows Co. 155

(Testimony of Kalph J. Clawson.)

The Court: Where did it tear, between the ele-
phant and where ?

A. B: broke once right on the No. 1 bail ring,
and going through the block there it got fouled.

The Court: And broke right at the blocks

A. I think so. It is pretty hard to tell, but that
is the way I think. And they tie that right onto the
bail ring.

Q. By Mr. Combs: That was chained on after
the fall broke at Pasadena'?

A. Yes.

The Court : Are you through f [197]

Mr. Combs: Almost. Just a moment, if your
Honor please,

Q. By Mr. Combs: Then you went to Pomona,
after Pasadena? A. Yes.

Q. Did the show go on on schedule there 1

A. I didn't keep the time on the performances,
but I think the performance started along about
3:00 o'clock. I wouldn't want to say.

Q. It went on more or less on schedule?

A. Yes, sir.

Q. You are often 20 minutes to a half hour late,
aren't you?

A. On some days. Of course it doesn't occur
every day, but it happens. The first part of the sea-
son you are more or less late in arriving and get-
ting your equipment in shape.

Q. And equipment, that is to say, circus wagons,
quite frequently have hot boxes on the road?

1 56 Fanchon & Marco, Inc., vs.

(Testimony of Ralph J. Clawson.)

A. In recent years it has. All this equipment
was built back along to be drawn by horses, all old
iron-tired wagons and boxings and axles in there,
and when you use too much power, in place of go-
ing at four miles an hour, probably the trucks will
run up to ten or twelve miles.

Q. Or maybe more than that?

A. Yes, maybe. With the Great American Show
we [198] didn't have our own drivers. They hired
local trucks.

Q. Did they run faster than the four or five
miles an hour that such wagons will take?

A. Yes, considerable. They probably run 15 or
20 miles.

Q. In this Great American Circus*?

A. Yes. I stopped them several times. I think
Mr. Daillard and I were standing out there, and
stopped two drivers for going out of the lot too fast.

Q. And that would result in hot boxes?

A. Yes, sir. Of course, that was a long haul. It
is quite frequent on a show as big as the Ringling
Show, to have one or two hot boxes a day. If any
of them get hot, we call a greaser, and they go
around and grease those wagons, and sometimes they
may skip a wheel or something, and whenever you
get the motive power to it you always have this
trouble.

Q. At Pomona did there occur anything with
relation to the Actors' Federation of Labor union,
that you observed there?

Hageribeck-Wallace Shows Co. 157

(Testimony of Ralph J. Clawson.)

A. Yes. A representative of the- Actors' Associa-
tion pulled out the Fanchonette out of the show, and
I think it was Walter Ghiice, and he blows the or-
ganization and his act, and I am pretty sure the
band was union and said they would have to go
out also.

Q. By " pulling out" you mean go on a strike?

A. No, just pull out from working. We wasn't
union. [199] We wasn't an organized show.

Q. That actually occurred within your knowl-
edge at Pomona? A. Yes.

Q. So that you lost Guice, the band and the
Fanchonettes ?

A. We would have lost them if we had went
on at all.

Q. And did you go back to Baldwin Park the
next day? A. That is right.

Q. Respecting the runs on the flat cars, were
they in good or bad condition?

A. The runs was in good condition.

Q. Do you know that of your own knowledge ?

A. I know that of my own knowledge, because
they was brand new runs made in 1938, 38 inches
wide. It was very good equipment.

Q. Did you observe the fact that the pole wagon
jumped the runs in Santa Ana?

A. No. I wasn't there.

Q. When a car or wagon jumps the runs, in
circus parlance, what does that mean?

158 Fanchon <Jc Marco, Inc., vs.

(Testimony of Ralph J. Clawson.)

A. That means sometimes that your deck polar,
the wagon itself, in other words, it is fastened to the
wagon, and a man walks along like this and guides
this pole, and sometimes he might get it to the
edge, and when he makes a stop, he steps to one side,
and the pole might jerk a little. [200]

Q. And it just runs off the runs ?

A. Yes. It is not very often that it happens. And
this boy is apt to step aside, and one wheel will go
off the run, because it can run off. [201]

Cross Examination

Q. What condition would you say this equip-
ment was in?

A. I would say it was in usable condition, all
used equipment, though.

Q. Would you say it was in good condition?

A. Usable.

Q. I am asking you if you think it was in good
condition.

A. I think it was good enough to use, yes.

Q. You would say it was in good condition and
ready for use?

A. It can be used. It is not new property.

Q. I would like to have you answer me spe-
cifically on that question. I am asking you if? in
your opinion, it was in good condition and ready
for use?

A. I would say the property was all in shape so
it [207] could be used.

Hagenbeck-Wallace Shows Co. 159

(Testimony of Kalph J. Clawson.)

Q. Will you answer that yes or no, please f

The Court: Just answer the question that he is
asking.

Q. By Mr. Schaefer: Did you consider the equip-
ment in good condition and ready for use?

A. I do, yes. It could be used. That is as far as I
can tell. It could be used. As far as good condition, I
don't know just how you mean that.

Q. You are familiar with circus equipment,
aren't you? A. I am, yes.

Q. And you knew the purpose for which the de-
fendant was going to use the equipment, didn't you?

A. That is right.

Q. And in your opinion it was in good condition
for that purpose ?

A. It could be used for circus purposes.

Q. It was in good condition for that purpose?

A. It was in usable condition for that purpose.

[208]

Q. Now, when did you begin working on that
equipment? A. We started

Q. The day of the week.

A. I think it would be about a Thursday.

Q. Thursday of the week preceding; is that
right? A. That is right.

Q. What else did you do from Thursday until
the time that equipment moved into Inglewood?

A. We painted the wagons and fixed up corner
chains and ropes, and whatever we could do on it.

Q. Tell me what else you did, if anything.

160 Fanchon & Marco, Inc., vs.

(Testimony of Balph J. Clawson.)

A. We got — we brought up a cook house wagon,
equipped with boilers and general stuff, painted the
equipment, painted the poles.

Q. Anything else you did besides the cook house
and the painting of the equipment ?

A. Yes. We had the wardrobe cleaned, sent it to
the cleaners out at El Monte, I think. We fixed up
electrical equipment, and had our men out there
working night and day.

Q. What electrical equipment?

A. Cables and lines, etc.

Q. The defendant didn't take the electrical
equipment provided for in the contract ?

A. No, they didn't take that. [210]

Q. What electrical equipment was there that
they took, that you did work on ?

A. The cables and falls and stuff like that.

Q. Any other work that you did?

A. Yes. We painted the wagons. I have stated
that before. We fixed all the wagons underneath, the
gears; we straightened the gears up on the wagons
and tightened all the connecting rods which was
necessary.

Q. How many men were employed for that pur-
pose or working on it?

A. We had, I would say, out there, roughly,
probably a hundred.

Q. Working on the equipment?

A. Yes, working on the equipment.

Q. Getting it in shape? A. Yes, sir.

Hagenbeck-Wallace Shows Co. 161

(Testimony of Kalph J. Clawson.)

Q. Was there any work done on the runs ?

A. Yes, the runs, the boards on the sides, was
tightened up to pull them together. The runs was in
good condition before.

Q. What about the cars? A. Which cars?

Q. Flat cars. What was the condition of the
decks f

A. The decking wasn't in bad shape. There was
probably one or two places that was weak, but as a
whole it was in good condition. [211]

Q. They were completely re-decked, weren't
they, some of them, at San Diego?

A. No, they was not.

Q. How many cars?

A. I couldn't tell you what they did on that.

Q. You say the sleeping cars were not equipped
with blankets or sheets or pillow cases ?

A. Not complete. We had some.

Q. You say the custom in that regard is to fur-
nish them with mattresses only?

A. Yes, and built-in berths.

Q. But you do furnish them with mattresses?

A. Yes.

Q. Did you not have a conversation with Mr.
Daillard and Mr. Eagles, at which time they asked
you about the berth equipment ?

A. At winter quarters I told them — Mr. Daillard
said we was supposed to equip the cars complete, and
so I told him I didn't think so, because we didn't
have the equipment. I gave them a list of what

162 Fanchon & Marco, Inc., vs.

(Testimony of Ralph J. Clawson.)
equipment we had, so he said, "We ought to go get
hold of some stuff anyway, and wTe will straighten
this out later." So I didn't get any.

Q. Didn't you tell him you would try to get
some? A. No, sir.

Q. Didn't you attempt to do so? [212]

A. Mr. Eagles called up the United Tent & Awn-
ing Company, and they said, "Who do you want
this charged to?"

Q. Isn't it a fact that you called the United
Tent & Awning Company first and attempted to ob-
tain some blankets ? A. No, sir, I did not.

Q. On no occasion? A. No, sir.

Q. Did you tell Mr. Daillard to procure the
equipment f A. I did not, no, sir.

Q. Did you have elephant howTdahs out there?

A. They had five at M. G. M., four or five, and
we had eight in the winter quarters left.

Q. Were those usable?

A. Every one of them, yes. [213]

Hageribeck-Wallace Shows Co. 163

MARCO WOLFF,

called as a witness in behalf of defendant, being
first duly sworn, testified as follows:

Direct Examination [219]

DEFENDANT'S EXHIBIT No. 15

Western Union

TWS MW PD1— Mr. John Ringling North
Ritz-Carlton Hotel
New York, N. Y.

Strongly recommend rental to Fanchon & Marco.
They are playing under some well known charity
auspices out here. I have tried to liquidate our prop-
erty out here and so far have not been successful.
This rental will show us a good revenue as you
know we are at a tremendous expense now. We will
also have elephants, wagons, and cars for other ren-
tals on the Coast. I worked out the price of sixteen
hundred a week with Mr. Nelson, Fanchon and
Marco's representative. Their admission prices are
small, twenty-five and fifty a day, and they are
really not in a position to pay any more. Was in-
formed late this afternoon that they can get equip-
ment from Rochester, Indiana to play the dates.
Kindly advise me your opinion at once as I do not
think we should lose this business. Regards.
RALPH CLAWSON.

[Endorsed] : For identification Deft. Exhibit No.
15. Marked Nov. 27, 1940.

164 Fanchon do Marco, Inc., vs.

(Testimony of Marco Wolff.)

A. Daillard told me that the calliope didn't
work, and he said the rigging was in bad shape, the
seats were in bad shape, the wagons needed a lot of
work done to them, the cars on the trains needed a
lot of work done. And he took me around and
showed me — Daillard took me and showed me a lot
of the bleacher seats without any backs on the back
of them, and there was one entire section without
any cross pieces at all. Later my insurance agent
saw these seats and the equipment, and told me that
I couldn't possibly get insurance for it.

The Court: Whatever the insurance agent told
him a few days later on wouldn't be material. You
can't do that. [231]

The Witness: This was at the time I was out
there.

The Court: No. Just this conversation between
you and Daillard and Clawson. Clawson was present
when this conversation was had between you and
Daillard?

A. Yes. Clawson told me that he would get the
calliope fixed right away, and that the additional
cross pieces for the seats would come out, and the
elephant howdahs were not there, and he said he
would get us the elephant howdahs right away. He
said he didn't have any money and he couldn't fix
up the railroad cars, that his credit wasn't good for
that, and he asked us to advance the money for that.

The Court : Asked you ?

A. Yes. And he suggested that we could deduct

Hagenbeck-Wallace Shows Co. 165

(Testimony of Marco Wolff.)

from our first payment any advances that we might
have to make. There were quite a few purchases that
had to be made for rigging and hardware and rope,
and he said he would be ready with the show. But
our rehearsal, which was for 9:00 o'clock originally,
and then 10:00 o'clock, and then 11:00 o'clock, and
2:00 o'clock, and 5:00 o'clock, and 8:00 o'clock at
night, we still had no rehearsal. The equipment
wasn't ready the entire first day. The tent was up,
and so I told the performers the following daty to
have rehearsal in the morning, so that we would
have a rehearsal before the matinee went on, but
again they were busy trying to make repairs on
rigging. I know one of the performers, Tiny Kline,
refused to go up in the rigging with her ring [232]
act, because she said she would break her neck. And
there were continual postponements, which I re-
ported continuously to Clawson, and finally, about
30 minutes before wTe had to open the tent for the
customers, we were able to just run through the
opening part, and just walk through. We couldn't
actually go through the rehearsal properly. The
calliope, which is a very important part of the musi-
cal part of a circus, was never usable. And we had
to let a number of people sit right off the main track
without seats to sit on. I complained to Clawson
about it, and he said he would get it in shape. And
they had a 3-day stand in San Diego, with a day in
between, and he thought he could get it in shape for
San Diego. And I told him I wouldn't pay him until
he would get it in shape. [233]

166 Fanchon & Marco, Inc., vs.

(Testimony of Marco Wolff.)

A. I told Clawson that I was very dissatisfied
with the equipment, that it had taken us a day and
a half to get it up, that we had spent over a thou-
sand dollars already in putting things in shape that
he was supposed to spend in order to deliver it to us
in good shape, that much of the equipment had not
been used, that some of the performers had refused
to go up on the rigging because it was unsafe, and
they didn't wish to risk their necks. I told him that
we were tremendously involved with sponsors. I
even told him about our deal with the Chief of
Police in San Francisco. And I told him if we
couldn't do any better, if it took us a day and a half
to get the show up, I didn't see how we could make
our next move, although I had left a day open be-
tween Inglewood and San Diego, but beyond San
Diego I didn't see how we could possibly put our
circus on safely and meet our performances, if Mr.
Daillard or Eagles would come and ask for another
purchase order or for some cash. And Roy Wolff —
we had to send to our studio several times and get a
large check cashed, and he would have to be spend-
ing out tens and twenties and thirties and hundreds.

[237]
Cross Examination

Q. Then you sent a telegram to your sponsors?

A. Yes, sir.

Q. And that telegram is contained in this Ex-
hibit 14, reading as follows: " Kramer of American
Federation of Actors has called out acts which are

Hagenbeck-Wallace Shows Co. 167

(Testimony of Marco Wolff.)

members of his organization. This and other labor
difficulties which have caused us to miss matinee
performances in Santa Ana and Pasadena necessi-
tates us advising you with regret we will be unable
to fulfill contract for circus performance. One of
our men will contact you later. Fanchon & Marco,
Inc."

You sent that to these named sponsors'?

A. Yes, sir. [264]

MRS. PATTY HACKETT,

called as a witness on behalf of defendant, being
first duly sworn, testified as follows :

Direct Examination

Q. By Mr. Schaefer: Mrs. Hackett, what is your
business or occupation'?

A. I have charge of the Fanchonettes and am
one of them.

Q. Mrs. Hackett, do you recall the Great Ameri-
can Circus in May of 1939 ? A. I do.

Q. Were you in that show ? A. Yes, I was.

Q. Did you take part in the Fanchonette show of
that circus? A. Yes.

Q. Did you travel with the circus .? A. I did.

Q. In the sleeping cars? A. I did.

Q. Did you have occasion to go into the sleeping
cars of the circus? A. Yes.

Q. When did you first go in, at what time or
place? A. In Inglewood, where we opened.

168 Fcmchon & Marco, Inc., vs.

(Testimony of Mrs. Patty Hackett.)

Q. Will you tell us the condition of the sleeping
car [275] you occupied?

A. Yes. The berths that we slept in had no cur-
tains, and there were no springs on the berths.
There were just wooden boards, with straw mat-
tresses on them, and they had evidently been in stor-
age for quite some time, because there were lumps
in them.

Mr. Combs : The statement that they had evidently
been in storage for some time was a conclusion of
the witness.

The Court : Well, she says there were lumps.

The Witness : I came to that conclusion because of
the

The Court : Answer the question.

Q. By Mr. Schaefer: Just state what you saw.
What was the condition of the mattresses?1

A. They were in very poor condition.

The Court: That isn't it.

Q. By Mr. Schaefer: Tell us whether they were
smooth or lumpy?

A. They were lumpy, and they were all downs
and ups, and you couldn't sleep on them. It was
practically impossible to.

Q. Were there any toilet facilities.

A. Yes, and they were in very bad condition.

Mr. Schaefer: I will stipulate that that may go
out. When you say "in very bad condition" you are
testifyhig to your conclusion. And the court doesn't
know what a bad condition may mean. [276]

Hagmbeck-Wallace Shows Co. 169

(Testimony of Mrs. Patty Hackett.)

Q. By Mr. Schaefer: Will you tell us what the
condition was ? Was there running water or not, and
were they clean?

A. There wasn't running water, and the lava-
tory, the toilet in there could not be flushed, because
of that reason, and it had been used, and we could
not use it afterwards, because the refuse was still in
there.

Q. Did you sleep in the car? A. I tried to.

'Q. Is there anything else you can tell with re-
spect to the equipment? A. Yes.

The Court : That is too general.

Q. By Mr. Schaefer: First, tell me what equip-
ment you are speaking about — in the sleeping car?

A. In the sleeping car.

Q. Proceed.

A. Yes. The windows wouldn't stay open. We
had to prop them open to get air, prop them open
with a Coca Cola bottle.

Q. Anything further with respect to the nature
of the equipment ? A. I believe not.

Q. The sleeping car or otherwise? How many
girls were in the car with you ?

A. There were 20. [277]

Q. Did you examine all the berths, or those occu-
pied by the Fanchonettes ?

A. I was in several of them, yes.

Q. Were they all in the same general condition?

The Court : What was the condition of the balance
of them?

170 Fanchon & Marco, Inc., vs.

(Testimony of Mrs. Patty Hackett.)

A. They were all practically the same. I didn't
examine them minutely, but they seemed to be all
the same.

Mr. Schaefer: Any cross examination?

Cross Examination

Q. By Mr. Combs: When did you arrive at
Inglewoodf

A. I don't remember the exact date.

Q. Was it the day of the first performance?

A. Yes, I believe so, or the date previous to the
opening day.

Q. The cars, however, were in Inglewood when
you arrived? A. I don't know.

Q. They were in Inglewood when you first saw
them, were they not? A. Yes.

Mr. Combs: That is all.

The Court : Call your next witness.

Mr. Schaefer: I have, your Honor, six additional
witnesses who were in the Fanchonettes, whose evi-
dence will [278] be cumulative, and I take it your
Honor does not care to have that produced?

The Court: Do you concede that these witnesses
would testify the same way?

Mr. Combs : Substantially as this young lady did.

Mr. Schaefer : I have here Miss Lorraine Roberts,
Miss Virginia Perkins, Miss Mary Carr, Miss Ruth
Barr, Mrs. D. G. Douglass and Mrs. Ann Weber,
who will testify in the same manner.

Mr. Combs : If called, they would testify substan-
tially as this witness did.

The Court : Yes. Call the next witness. [279]

Hagenbeck-Wallace Shotvs Co. 171

TINY KLINE,

called as a witness in behalf of defendant, being
first duly sworn, testified as follows : [280]

Direct Examination

A. The mattress was lumpy and very thin. And
the runners in the aisle at this particular place in
front of my berth had a big hole about maybe two
feet broken out, and you could stumble in it easy,
and it was unsanitary.

'Mr. Combs: That is a conclusion of the witness.

The Court: Proceed.

A. And one toilet assigned to the ladies was just
a toilet, with no running water, and the wash basin
in it was so close that it would only hold one per-
son. While one girl would be washing in there, no
one could utilize the toilet, and that, of course, was
an inconvenience to everybody.

Q. By Mr. Schaefer: Was there running water?

A. In the wash basin, yes.

The Court: Was there water to flush the toilet?

A. No. And the wash basin, which was really
supposed to be for the girls to make their toilet,
was utilized by the porters to shine the shoes, and
therefore we had only [285] one toilet and wash
room, and it was very bad. [286]

172 Femchon <k Marco, Inc., vs.

WAYNE DAILLAED,

called as a witness on behalf of defendant, being
first duly sworn, testified as follows : [288]

Direct Examination

Q. By Mr. Schaefer: What did you see?

A. I saw splintered decking, splintered timber.

The Court: Tell us what you saw.

A. I saw the decks splintered, with holes in
them, places that were worn.

Q. By Mr. Schaefer: Were they repaired at
San Diego ? A. Yes.

Q. Did you discuss this with Mr. Clawson?

A. Yes. I got the report on that from Mr. Bee-
son, I believe his name was, and also from Mr.
Eagles, and I went down and looked at them, and I
called it to Mr. Clawson 's attention. At that point
Mr. Clawson had refused to do any more at San
Diego, as he said he had no authority to spend
any money until the situation had been worked out.
I said, "Well, I am going to have the train decks
repaired of necessity, and I am going to hold Ha-
genback- Wallace for it."

Q. You said that to Mr. Clawson?

A. Mr. Clawson.

Q. At San Diego? A. At San Diego. [298]

Q. Did you see any of the wagons empty out
from the train? A. Yes.

Q. To the lot? A. Yes.

Q. Did you observe any of them in difficulties?

A. Yes.

Hagenbeck-Wallace Shows Co. 173

(Testimony of Wayne Daillard.)

Q. Will you state what you saw in that con-
nection ?

A. Yes. I was going from the lot downtown to
lunch with Mr. Priest.

The Court : Just what you saw.

A. I saw a wagon boxing on fire.

Q. By Mr. Schaefer: How fast was the wagon
moving1?

A. We followed the wagon for about a mile, Mr.
Priest and myself, and I would say four, or maybe
five miles an hour.

Q. Did you see that wagon again?

A. Yes.

Q. When did you see it again'?

A. An hour later, when we returned from lunch.

Q. Where did you see it the second time?

A. It had proceeded about a mile and a half,
possibly.

Q. Was the matinee given in Santa Ana?

A. It was not. [299]

Q. Did you give the afternoon performance in
Pasadena ? A. No.

Q. Do you recall any lines breaking in Pasa-
dena, or falling of the tents?

A. Yes. I observed some lines break in Pasa-
dena.

Q. Do you recall how many times that hap-
pened? Were you there?

A. The report was — —

The Court : Not the report. What did you see ?

A. I saw the tent, that is, the canvas, drop on

174 Fanchon dt Marco, Inc., vs.

(Testimony of Wayne Daillard.)

three different occasions that I observed it. I

couldn't, however, observe the cause of that.

Q. By Mr. Schaefer: You saw the tent fall, did
you? A. Yes.

Q. Did you have any conversation with Mr.
Clawson with respect to that ?

A. I don't recall any.

Q. Did you have any conversation with him with
respect to the ropes ?

A. Yes. In substance, that conversation was

[300]

Q. That was in Pasadena?

A. In Pasadena.

Q. Was anyone else present besides you and Mr.
Clawson?

A. I believe Mr. Eagles was present at that. As

A. I saw the tent, that is, the canvas, drop on
a matter of fact, I think Mr. Eagles brought about
the conversation.

Q. What was said by the parties?

A, In substance it was that I wanted, I asked,
or maybe demanded — I don't know — that those
ropes be renewed. We had very concrete evidence
that there was something wrong with them, and Mr.
Clawson again advised that he wasn't able to do
anything in the way of purchasing ropes.

Q. Did he state why?

A. No, I believe not, [301]

Q. What was the condition of the wardrobe?

A. Very bad.

The Court: What do you mean by that?

Hagenbeck-Wallace Shows Co. 175

(Testimony of Wayne Daillard.)

A. I mean the wardrobe was faded and worn,
and I have seen a lot of wardrobe.

The Court: Well, just what you saw as to the
condition it was in.

A. And incomplete.

The Court: In what respect?

A. There would be trousers missing to uniforms,
or caps missing to uniforms, and turbans missing.

The Court: We could save considerable time
if you would [302] just point out how many tur-
bans were missing.

A. I can't do that accurately.

Q. By Mr. Schaefer: Can you tell us about what
portion of the wardrobe was usable I We can arrive
at it that way.

A. You asked me what condition the wardrobe
was in, and I have handled wardrobes for years —

The Court: Don't argue. Just answer the ques-
tions.

A. I recall that we replaced, or bought, that
were missing, duck trousers for the band; caps for
the band; turbans for some of the entry acts.

The Court: The missing parts were supplied by
you?

A. Yes, we purchased them.

Q. By Mr. Schaefer: Can you state now what
percentage or proportion of the wardrobe that was
furnished was usable, and what was not usable ? An-
swer that yes or no. A. Yes.

1 76 Fanchon & Marco, Inc., vs.

(Testimony of Wayne Daillard.)

Q. I will ask you what percentage of the ward-
robe that was furnished was usable and what per-
centage was not usable*?

Mr. Combs: That is objected to as calling for a
conclusion of the witness.

The Court : I think from his answers to the ques-
tions awhile ago he is not qualified to answer.

Mr. Schaefer: I am directing it to the entire
wardrobe.

Q. By Mr. Schaefer: Do you know the amount
of wardrobe that was obtained from the Hagen-
back- Wallace Shows? Did [303] you see the ward-
robe ? A. Yes.

Q. Do you know what proportion of that was
used?

A. There was about 75 per cent of what we took
that we actually used.

Q. About 75 per cent? A. Yes.

Q. Were there any elephant howdahs supplied
by Hagenback- Wallace ? A. No.

Q. Was the calliope in operation?

A. No. [304]

"GLENN HALL,

called as a witness in behalf of defendant, being
first duly sworn, testified as follows : [314]

Direct Examination
A. The chairs were all right. The plank they
sit on, there was a number of them that were splin-

Hagmbeck-Wallace Shows Co. 177

(Testimony of Glenn Hall.)

tered; the edges that were on the front of them or
the backs, to hold the chairs, there were a number
of them off, and it caused the chairs

Mr. Combs: Just a minute. That is a conclusion.

Q. By Mr. Schaefer: What did you observe
after the seats were erected with respect to the
chairs? Did they set normally?

A. Yes. There was a few of the planks that had
boards nailed over them so that they would set
normally.

Q. Did you examine the bolts or nuts, or see
them when you were erecting them ?

A. There were a few of them that were replaced
on the jacks, yes.

Q. Did you sleep on the train?

A. I did one night, yes.

Q. What was the condition of the car?

Mr. Combs: That is objected to as calling for a
conclusion of this witness.

Q. By Mr. Schaefer: State what you saw or
observed.

A. On the train, on the sleeping car, there were
bunks that had small, thin mats, instead of mat-
tresses on them, and they were hard and lumpy,
and the windows on the car, you couldn't hardly
open them. The one I was in I couldn't get the
window open, so I rode on the flat car. [317]

Mr. Schaefer: Cross examine.

178 Fanchon dc Marco, Inc., vs.

(Testimony of Glenn Hall.)

Cross Examination

Q. By Mr. Combs: You wouldn't state that all
the windows in the cars couldn't be opened, would
you?

A. Well, in about four or five different bunks
that I tried, I couldn't. [318]

DEPENDANT'S EXHIBIT No. 16

Great American Circus

INCOME AND EXPENSE STATEMENT

'icket Sales Including Tax Inglewood 5/24/39 $1,607.69

" San Diego 5/26/39 578.71

"San Diego 5/27/39 1,984.06

"San Diego 5/28/39 1,747.20

" Santa Ana 5/29/39 1,587.70

11 " " Pasadena 5/30/39 864.47

" " " " Pomona 5/31/39 804.80

Total Ticket Income $9,174.63

lisc. Income:

Banner Account $145.00

Milk Fund 11.59

Pie Car 16.99

Total Misc. Income 173.58

Total Income $9,348.21

Ixpense :

General Misc. Operating Expenses per statement $29,252.15

Cost of Equipment Repairs per statement 1,672.40

Settlement with Sponsors per statement 1,747.59

Total Expense $32,672,14

Net Loss $23,323.93

Hagenbeck-Wallace Shows Co.

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190 Fanchon & Marco, Inc., vs.

R. V. KETTRING,

called as a witness in behalf of defendant, being
first duly sworn, testified as follows:

Direct Examination

Q. What is your position with the Santa Fe
Railroad? A. General car foreman.

Q. Did yon have occasion to inspect and ex-
amine some circus cars of the Great American Cir-
cus in May of 1939? A. I did.

Q. Did you make any repairs to those cars?

A. Yes, sir.

Q. Do you have any data there indicating the
nature of the repairs and the number of the cars?

A. Yes. We have a complete

Q. Where did you pick up those cars?

Mr. Combs : Excuse my interrupting you. We will
stipulate that the Santa Fe made repairs of three
hundred and some odd dollars. [336]

The Court: How much is that?

Mr. Combs: Three hundred and thirty-two and
some cents.

Mr. Schaefer: Of course, it isn't, your Honor,
the purpose to prove the amount with this witness.
The purpose is to prove the nature and extent of
the repairs, as one of the elements of the failure
of the equipment. I have called this witness to
showT the condition of the cars. That is my point.

The Court: Oh, I don't care anything about that.

Mr. Schaefer: Well, I think it goes to the de-
fendant's case very largely, your Honor, to show

Hagenbeck-Wallace Shows Co. 191

(Testimony of R. V. Kettring.)
how extensive the repairs were. We have the testi-
mony of Mr. Clawson that there were minor re-
pairs made, to begin with, and I have a witness here
to show what the nature of the repairs was, the
man who did it.

The Court: The nature does not make any dif-
ference.

Mr. Schaefer: It shows the extent of the repairs
necessary to the equipment, and their condition
when they came from Baldwin Park, your Honor.
It goes to that part of our case.

The Court : When was this inspection made %

A. Well, the final inspection on the cars was
made on May 23rd, at our Santa Fe yards. The
original inspection was made prior to that time.
I do not recall the date. It was made at Baldwin
Park. The inspection at Baldwin Park, you might
say, was the preliminary inspection. [337]

Q. By Mr. Schaefer: What condition did you
find the cars in?

A. We found the cars at Baldwin Park in what
we would term, in a railroad term, as in fair con-
dition, needing repairs to the safety appliances,
air brakes, and the running gear of the cars, to
make them safe to move.

Q. Will you state what repairs were made and
give the car numbers, if you can, and state why
they were made?

The Court: We don't need that. What other
defects, if any, did you find in the cars %

192 Fanchon dc Marco, Inc., vs.

(Testimony of R. V. Kettring.)

A. Well, I found several little defects that was
in violation of the Interstate Commerce rules, if
we would operate the cars over our lines, such as
old air lines, wheels with worn flanges. And we had
one coach that was — on request of the parties op-
erating the show, they asked us to make repairs —
it had a defect in violation of the Interstate Com-
merce rules, and these repairs were all made to the
cars on our repair tracks, prior to their departure
for San Diego. The cars were brought back from
Inglewood to our repair tracks, and repairs were
made.

Q. By Mr. Schaefer: Mr. Kettring, will you
look through these bills as quickly as you can and
tell me if they are the original bills that came from
the Santa Fe to Fanchon & Marco?

A. Yes, sir, they are. They are the original
bills.

Q. Do they show the nature of the repairs'?

[338]

A. They show the nature of the repairs and why
the repairs were made.

Q. And the cars on which they were made?

A. And the individual cars upon which they
were made.

Q. That first yellow bill has the name "Ket-
ring" on it. Is that your signature?

A. That is the signature of my clerk.

Q. Put there at your direction?

A. At my direction.

Hagenbeck-Wallace Shows Co. 193

(Testimony of R. V. Kettring.)

Mr. Schaefer: We offer these bills in evidence
for the purpose of showing

The Court: Any objection?

Mr. Combs: I don't believe so. Is that the three
hundred and thirty odd dollars?

Mr. Schaefer: $332.22.

The Court: The same amount as in your bill?

Mr. Schaefer: That is right.

The Court: Let it be filed.

The Clerk: Defendant's Exhibit No. 17.

DEFENDANT'S EXHIBIT No. 17

Santa Fe

MEMORANDUM BILL

Los Angeles, Calif. Station, May 24, 1939

The Greal American Circus.
For repairs to cars 65, 85, 87, 80, 64, 83, 89, 88, 84, 82, 81, 52, 50, 45, and 46, Los Angeles, repair track
May 23rd, 1939.

Items of Repair* Amount Items of Repairs Amount

As per A. A. R. billing attached.

Miscel. charges (Labor & mtl $260.09

Labor 26.4 hours (a $1.25... 33.00

La bor 17.8 hours @ 1.40 24.92

Labor 6. hours @ .42 V2 2.55

Wrot iron 168 lbs. @ 5%^ 9-24

Lumber 6 BM ft. @ 05^ 30

Spring steel 24 lbs. @ 5i/2tf 1.32

Mailable iron 10 lbs. @ 08^ 80

$332.22
(Bill to be collected by Agent, Los Angeles,)
(Bill made on AAR basis )

Mr. Mendelsohn-cc-CRM, RT.
CREDIT

LABOR MATERIAL

Account Amount Account Amount

314 129.45 314 99.38

317 70.18 317 30.66

402 P 2.55

Note : To be forwarded to the Audit office.

R. V. KETRING £

4—

General Car Foreman.
AJP/RJ

M. M.

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218 Fanchon & Marco, Inc., vs.

(Testimony of E. V. Kettring.)

Mr. Schaefer: May it be stipulated that we paid
$55 for one round trip from Inglewood to Los An-
geles, in transporting the cars?

Mr. Combs: So stipulated.

Mr. Schaefer: Cross examine.

The Court: Any cross?

Mr. Combs: Yes. [339]

Cross Examination

Q. By Mr. Combs: The cars were moved from
Baldwin Park to Inglewood in the condition in
which they were at Baldwin Park, were they not?

A. Yes, sir. After several minor repairs were
made to the cars, and on agreement with the par-
ties in charge of the circus at that point that they
would see that the air brakes were operative, we
agreed to move them to Inglewood, so they could
unload them, and move them from Inglewood back
to our repair tracks for repairs.

Q. And that was done?

A. That was done. I was the one that agreed
to that. [340]

Hagenoeck-Wallace Shows Co. 219

TED DUCEY,

called as a witness in behalf of defendant, being
first duly sworn, testified as follows:

Direct Examination

Q. Did you*do any work for the Great American
Circus in May of 1939? A. I did.

Q. What work did you do?

A. I furnished trucks to move their wagons to
the Rose Bowl.

Q. And where, with relation to your business,
was the [341] railroad siding upon which the cir-
cus unloaded?

A. Right in front of my yard.

Q. Tell us about the hauling of the trucks, how
you hauled them.

A. We hauled the wagons behind the trucks,
tied them on and hauled them down to the Rose
Bowl. Going out Lincoln Avenue, there is quite a
hill going down into the Rose Bowl, and the main
reason for the trucks, there was no brakes on the
wagons or anything, and we had to tie the wagons,
one in back of one truck, to start it, and one truck
behind there, to hold it back, so they wouldn't run
away. We lost two or three of them, as it was.

Q. Did you examine the circus wagons?

A. I saw them, yes.

Q. What did you find with respect to the
brakes ?

A. There wasn't any of them that were any good
at all. There wasn't one wagon that had one that
was worth even trying to use.

220 Fanchon & Marco, Inc., vs.

(Testimony of Ted Ducey.)

Q. And you put one truck on in front and one
on behind?

A. Yes. We would take two wagons and tie it
behind one truck, and then tie an extra truck on
behind, to hold them back.

Q. Are you familiar with 'circus equipment'?

A. Well, I have watched

The Court: Answer yes or no.

A. Yes. [342]

Q. By Mr. Schaef er : Over what period of time 1

A. 20 years or more.

Q. Have you seen circuses come there during
that time? A. Yes.

Q. Have you seen the equipment?

A. Yes, sir.

Q. Did you see the runs that were used in the
Great American Circus? A. Yes.

Q. Did you see the condition they were in?

A. I did.

Q. What condition were they in?

Mr. Combs: That is objected to on the ground
that no foundation has been laid for his expert
testimony.

Mr. Schaef er: I will go further, your Honor. I
am just trying to conserve time.

Q. By Mr. Schaef er : Have you examined circus
equipment? A. I have.

Q. Have you had occasion to work for circuses?

A. I have.

Q. On numerous occasions? A. I have.

Hageribeck-Wallace Shows Co. 221

(Testimony of Ted Ducey.)

Q. Over how many years?

A. Oh, 20 years.

Q. You have seen how many circuses unload
there? [343]

A. One a year, I guess, I would say.

Q. Can you tell us what you observed as to the
appearance of these runs?

Mr. Combs: That is objected to as incompetent,
irrelevant and immaterial and still no qualification
as an expert.

Mr. Schaefer: Your Honor, he can tell what he
saw, of his own knowledge. He doesn't have to be
an expert to testify to what it looks like or what it
appears to be. Anyone can testify to that.

Q. By Mr. Schaefer: Are you familiar with runs
used in unloading flat cars? A. I am.

Q. Have you observed runs used on circus flat
cars over a period of years? A. I have.

Q. How many have you examined?

A. I have seen every one that unloaded for 20
years, one each year at least.

Q. Have you seen the wagons go up and down
the runs? A. I have.

Q. The operation of the runs? A. Yes.

Q. Did you observe these runs? A. Yes.

Q. What condition did they appear to be in?

A. They were wood. They were not steel, like
they [344] generally use on all the other circuses,
and they had a crib up under them to brace the
wood, and had quite a little trouble unloading.

222 Fanchon dc Marco, Inc., vs.

(Testimony of Ted Ducey.)

Mr. Combs: May we have that last stricken out,
"quite a little truoble unloading"?

The Court: That is a conclusion of the witness.
Proceed.

Q. By Mr. Schaefer: What condition did the
runs appear to be in ?

The Court: What condition were they in?

A. They were not in very good condition.

The Court: Tell us about it,

A. They were made out of wood, and they had
wooden cribbing underneath them, to let the cars
off, and as they would let these wagons down over
the wood runway, the vibration would drop the
cribbing out from under it, and then they would
have to stop and crib it all up again. [345]

Q. Did you examine the bolster block that broke ?

A. Yes.

Q. Will you describe what a bolster block is?

A. A bolster block is on a wragon that is com-
monly [346] called, sometimes a fifth wheel, where
the kingpin goes in. When they get worn they get
a sharp edge, and if they get caught in a railroad
track or twist or turn, you can't hardly get them
back in line again.

Q. Did you examine these?

A. We had occasion to examine all of them, be-
cause we had trouble with them.

Q. Have you examined bolster blocks and wa-
gons for a long time?

Hagenbeck-Wallace Shows Co. 223

(Testimony of Ted Ducey.)

A. Ever since I was a kid.

Q. On how many wagons 1

A. My father had at least 50 wagons, in the
same business all his life.

Q. And you worked for him ? A. Yes.

Q. What condition were these bolster blocks
in? A. They were practically worn out.

Mr. Combs: That is a conclusion.

The Court: Yes. It will be stricken.

Q. By Mr. Schaefer: Were they worn or not
worn? A. They were worn.

Q. Did you notice anything else about them that
you now recall? A. About what?

Q. The bolster blocks, any other condition ?

A. That was all it could be, was worn. [347]

J. V. AUSTIN,

called as a witness in behalf of plaintiff, being
first duly sworn, testified as follows:

The Clerk: State your name, please.

A. J. V. Austin.

Direct Examination

Q. By Mr. Combs: What is your occupation,
Mr. Austin? A. Showman.

Q. How long have you been engaged in that
business? A. About 40 years.

Q. And in that connection what shows have you
been involved with, as such showman?

224 Fanchon & Marco, Inc., vs.

(Testimony of J. V. Austin.)

A. John Robinson's; H agenback- Wallace ; Al
Gr. Barnes; Sells-Floto; Ringling Brothers; Bar-
num & Bailey; and the Great American Circus.

Q. What capacities did you work for those or-
ganizations in?

A. From advertising agent to manager.

Q. Practically every capacity of an executive
nature? A. Most every one.

Q. And in that connection did you become very
familiar with the operation and complete activities
and functions of circuses? A. Necessarily.

Q. And your present residence is at San An-
tonio, Texas? [351] A. Yes, sir.

Q. Mr. Austin, did you have occasion to meet
Marco Wolff, of Fanchon & Marco, involved in this
law suit, at some time during 1939 ? A. I did.

Q. What was the nature and what were the cir-
cumstances of that meeting?

A. I was employed by them as traffic manager
and advertising agent of the Great American Circus.

Q. When was that employment undertaken?

A. About the 8th or 9th of May.

Q. 1939? A. 1939.

Q. Who employed you?

A. Mr. Nelson sent me the wire that gave me
the employment.

Q. What did you do then?

A. I came from San Antonio here.

Q. When did you arrive here?

A. I think it was about the 7th or 8th.

Hagmbeck-Wallace Shows Co. 225

(Testimony of J. V. Austin.)

Q. What did you do upon your arrival?

A. I conferred with Mr. Nelson regarding the
advertising matter that had been gotten up, and
made some suggestions regarding additional adver-
tising matter, and assisted in making the route in
such a way that the moves could be made by train.

[352]

Q. How long did that activity engage your at-
tention? A. I would say about a week.

Q. Then about the 17th of May, or the 15th
of May, did you continue your work for the Great
American Circus1? A. I did.

Q. In what capacity?

A. As traffic manager and advertising agent.

Q. What did you do in that connection from
then to the 23rd of May?

A. I consummated the railroad contract for the
movement of the special train and directed the ac-
tivities of the advertising agent, and divers and
sundry other things connected with the advertising.

Q. You are familiar with the custom of renting
railroad coaches to circuses, or in circuses, are you
not? A. Again, please.

Q. You are familiar with the custom or the
manner in which railroad coaches, Pullman coaches,
or those coaches in which the performers sleep, are
rented to circus companies, are you?

A. You mean rented by circus companies from
other owners ?

Q. Yes. A. Yes.

226 Fanchon & Marco, Inc., vs.

(Testimony of J. V. Austin.)

Q. Are they rented with or without pillows,
sheets and blankets? [353]

A. When rented from the Pullman Company,
which it sometimes becomes necessary to do, they
naturally come equipped, with their man in charge,
and, I would say, when being rented for other pur-
poses, without.

Q. That is to say, in all other cases, where such
cars are rented, other than when they are rented
from the Pullman Company, they come without that
equipment? A. I would say so, yes.

Q. Did you have occasion to examine the rail-
road cars in this Great American Circus?

A. I did not.

Q. You did not? A. I did not.

Q. Did you go out to Baldwin Park before the
opening day of the circus? A, I did.

Q. Did you examine zny of the equipment out
there at that time?

Mr. Schaefer: Just a minute. I object to that
unless it is the equipment used by the Great Ameri-
can Circus.

The Court: It should be limited.

Mr. Combs : It should be. I so qualify my ques-
tion.

A. Only to the extent that the various wagons
that were to be used were identified by Mr. Clawsou
as "this" and "that" and "this," and so forth.

Q. By Mr. Combs : Can you state what your ob-
servation [354] of their condition was at that time ?

Hagenbeck-Wallace Shows Co. 227

(Testimony of J. V. Austin.)

A. My observations of their conditions were
that they were usable.

Q. Were they in good condition, suitable for use
for the production of a circus?

Mr. Shaefer: I object to that as calling for the
conclusion of the witness, without proper founda-
tion being laid.

The Court : Let us find out what he knows about
it. Do you know anything more about them?

A. I can only say that they looked to me to be
usable.

Q. By Mr. Combs : You made only the one visit
in Baldwin Park before the 23rd? A. Yes.

Q. And on the 23rd what did you do in con-
nection with the Great American Circus?

A. I devoted most of my time to the advance
activities, in getting the advertising out and di-
recting the men in charge of it.

Q. Were you present at Inglewood when the
show was put on?

A. I was there at the night performance.

Q. Did that go off in order and in a normal
manner %

A. I thought for the initial day it went off
unusually good.

Q. Were you at San Diego when the show went
off there? [355] A. I was not.

Q. Were you at Santa Ana when it went off
there ? A. I was not.

Q. At Pomona? A. No, sir.

228 Fanchon & Marco, Inc., vs.

(Testimony of J. V. Austin.)

Q. Were you at Pasadena? A. No, sir.

Q. Then the only show or performance that you
saw was that at Pnglewood? A. Yes, sir.

Q. Did you have occasion at any time during
the course of the operation of the Great American
Circus to examine the equipment?

A. I did not.

Q. In connection with the production of cir-
cuses, has it been your observation that circuses
have one or more hot boxes in a run of even a week ?

Mr. Schaefer: I object to that as leading and
suggestive.

The Court: It is leading. Sustained.

Q. By Mr. Combs: Has it ever been your ex-
perience to observe a hot box on one of the wagons
in a circus? A. Yes.

Q. Frequently or infrequently?

A. Frequently, especially since they move them
by automobile. [356]

Q. In your experience wTith circuses, how long
does it ordinarily take to get smooth runing opera-
tion after the circus has first started running?

A. I would say about a week.

Q. Was there any difference in the manner in
which this Great American Circus, so far as you
observed it, observed the task of getting under way
as a smoothly operating circus, from any other
circus %

Mr. S'chaefer: I object on the ground that no
foundation has been laid, and the witness was not

Hagenbeck-Wallace Shows Co. 229

(Testimony of J. V. Austin.)

present, and didn't have the opportunity to see

the functioning of this circus.

The Court: He doesn't seem to have shown, at
any rate, that he knows anything about it in these
other places.

Q. By Mr. Coombs : Respecting the billing of a
circus, how long is it ordinarily the case that billing
is done, how long in advance of the presence of the
circus in a given town"?

A. Usually two weeks.

Q. Was that done in the case of the Great
American Circus? A. It was not.

Q. How long was the advance notice of billing
in that circus? A. Seven days.

Q. Was that an inadequate length of time for
the best results in billing? [357]

A. According to the regular way of doing it,
yes.

Q. During your experience in a circus have you
ever seen train flat decks or runs repaired in the
ordinary run of a circus?

A. You refer to the decking on the flat cars?

Q. Yes. A. It frequently wears out.

Q. And has to be replaced?

A. And has to be replaced from time to time —
from the spikes in the chock.

Q. Is such also the case with tent rigging, blocks,
falls and chairs? A. Yes.

Q. And also with wagons, in fact; isn't that
correct ?

230 Fanchon & Marco, Inc., vs.

(Testimony of J. V. Austin.)

A. They continually may get out of order. They
have very strenuous work, riding on the flat cars
at night and being hauled over all kinds of roads
in the daytime.

Q. Would you say, from your experience with
a circus, that repairs becoming necessary to such
equipment during the course of a circus are an
ordinary or an extraordinary thing ?

A. Any circus requires daily repairs.

Q. A blacksmith goes right along with it?

A. A corps of blacksmiths.

Q. And is constantly in attendance, fixing up
miscellaneous circus equipment ? [358]

A. Yes.

Q. Including blocks, falls, wagon runs and flat
decks, and everything? A. Yes.

Q. Is that right? A. Yes.

Mr. Combs: That is all.

The Court: Cross examine.

Cross Examination

Q. By Mr. Schaefer: Mr. Austin, you say re-
pairs are frequently necessary? A. Daily.

Q. Is that caused by the use of the equipment ?

A. Yes, by the very strenuous treatment it re-
ceives.

Q. After equipment has been brought into win-
ter quarters after a season, is it customary to make
any repairs then?

A. Not until before they start out in the spring.

Q. About how long would it take to get their
equipment in shape?

Hagenbeck-Wallace Shows Co, 231

(Testimony of J. V. Austin.)

A. That would depend upon the force.

Q. Tell me about the force. Give me the number.
Give me some idea as to how long it would take.

A. That would depend upon the nature and the
amount of the repairs, and the kind and number of
mechanics that [359] you have to make them with,
and the materials, and the accessibility of the spe-
cial material which is necesisary.

Q. Suppose, Mr. Austin, that you have circus
equipment out for a season — I suppose that would
be from spring until about September?

A. Until about November.

Q. Suppose you had circus equipment out for a
season, in ordinary use, such as it gets, and which
you are familiar with, how long would you say
it would take to put that equipment into repair be-
fore it could go out the next season, and tell me
upon what you base it, number of men, etc.

A. I wouldn't hazard a guess imtil I had seen
the equipment and know what repairs are necessary.

Q. Will you tell me how long it would have
taken to put the Hagenback- Wallace equipment that
you saw out there into shape, supposing it to have
come in in September, and to have had no work
done to it?

A. I wouldn't know what kind of shape it was
brought in in.

Q. In good condition, so that it would be thor-
oughly repaired, and so that it would be usable
and

Mr. Combs: We object to that. It is a little bit
involved there.

232 Fanchon & Marco, Inc., vs.

(Testimony of J. V. Austin.)

Mr. Schaefer: Wait until I finish my question.

Q. (Continuing) So that it was in good condi-
tion and [360] ready for use.

Mr. Combs: I don't understand what the ques-
tion is. May we have the question again?

Mr. Schaefer: Will you read the question, Mr.
Reporter ?

(Question read by the reporter.)

Q. By Mr. Schaefer: And in good condition
and ready for use.

A. I couldn't hazard a guess, unless T was more
familiar with the minute condition of the property
than I was.

Q. You weren't familiar with the minute con-
dition of this property, then? A. No, sir.

Q. Are you familiar with any instance in which
Hagenback- Wallace rented out their sleeping cars?

A. Not Hagenback-Wallace.

Q. Are you familiar with any other circus com-
pany renting out its cars? A. Yes.

Q. What company? [361]

A. I would have to make a little explanation in
connection with that.

Q. Can you tell me what company, first?

A. With the American Circus Corporation. We
operated several shows, and we rented, I think,
some cars from each one of the shows to a carnival
put out during the summer.

Q. How many such contracts are you familiar
with, how many times?

Hagenbeck-Wallace Shows Co. 233

(Testimony of J. V. Austin.)

A. I think we only did it twice.

Q. And that is what you base your knowledge of
the custom on? A. Yes, sir.

Q. When you say the equipment looked usable,
you made just this one-minute inspection you spoke
about? A. Non-minute. [362]

JACK W. KRAMER,

called as a witness on behalf of defendant, being
first duly sworn, testified as follows:

The Court: Your name?

A. Jack W. Kramer.

Direct Examination

Q. By Mr. Schaef er : What is your business or
occupation at the present time?

A. At the present time I am working as a labor
conciliator of the American Federation of Labor.

Q. In the latter part of May of 1939 what was
your business or occupation?

A. I was the representative of the American
Federation of Actors in the circus division, from
Canada to Mexico, for the American Federation of
Actors.

Q. Are you familiar with the Great American
Circus that was produced in May of 1939?

A. Very much so.

Q. Did you see that circus out at Inglewood?

A. Yes. sir.

234 Fanchon & Marco, Inc., vs.

(Testimony of Jack W. Kramer.)

Q. Bid you have a conversation with Mr. Marco
Wolff in connection with that circus'?

A. Out there, you mean?

Q. At any time. A. Yes, sir. [364]

Q. Where?

A. In his office, when I contacted him to take out
a closed contract for the circus.

Q. And did you see him on any other occasion?

A. Yes, sir ; I saw him on the grounds.

Q. Where? A. Out at Inglewood.

Q. Did you have a conversation with him there?

A. Yes, sir.

Q. Who was present on that occasion ?

A. Well, I can't recall the names, it has been so
long ago, but I believe there was a man, the manager
of the circus.

Q. Mr. Clawson? A. Clawson is the name.

Q. Will you relate that conversation?

A. I told him about wanting a closed contract
for the men, that most of our men were already in
it. He said at the present time that he had been so
involved in fixing the circus over, so that it would
be possible to present a show under the canvas, that
he wanted to know if I would give him a little ex-
tension of time, until such time as they could know
whether or not they could afford to pay the price
that we wanted for the men, and whether or not they
could see their way clear that they could organize
and unionize the circus. So I told him that in the
event [365] that he did not organize immediately in

Hagenbeck-Wallace Shoivs Co. 235

(Testimony of Jack W. Kramer.)
that town, or not later than the next town, it would
be an utter impossibility for him to go into San
Francisco with the show, because he wouldn't have
a chance to even open there, much less show in the
town, that they would not be as lenient with him as
I was.

Q. Have you had any experience with circuses?

A. I have had about 27 years of it, yes, sir.

Q. Have you been a performer ? A. Yes, sir.

Q. Did you see this circus equipment?

A. I did.

Q. Will you state what you saw?

Mr. Combs: That is objected to.

Mr. Schaefer: Well, he has had 27 years of ex-
perience with circuses.

Mr. Combs: That is not a proper foundation for
an opinion yet. He can say what he saw.

The Court : He can state what he saw.

Mr. Schaefer: Go ahead.

A. I saw the big top in the process of going up,
and I saw the men putting up the side walls and
guying the ropes, and I saw the juice wagon and the
ticket wagon; I sawT the animal wagons; I saw the
dressing room tents, where the horses and per-
formers were, and I had occasion to go down on the
tracks and see these so-called sleepers they [366]
had there, that I forbade my people on the show to
sleep in them.

Mr. Combs: Oh

The Court : That will be stricken. Just answer the
questions.

236 Fanchon & Marco, Inc., vs.

(Testimony of Jack W. Kramer.)

Q. By Mr. Schaef er : Will you describe the sleep-
ing cars there that you saw ?

A. Well, there was nothing in there other than
being very, very dirty, and they had a box down on
one end of the platform, where I had to step on it
to get onto the first step. Then when wTe went in it
seemed like there was straw in the ticking; instead
of being a mattress, it was a straw ticking for them
to lay on, and I didn't see anything else, or there
was no covers or anything else. I suppose there
was . [367]

Q. By Mr. Schaef er: At Inglewood, did you say?

A. No. It was over at Pomona.

Mr. Schaef er: He said the opening day.

Mr. Combs : He is talking about Pomona now.

The Witness: You asked me if I had been any
other place other than the opening day, and I be-
lieve Pomona was the town the circus closed in.

Mr. Schaef er: It has been stipulated that that is
the place.

The Witness : Yes.

Q. By Mr. Schaef er: Did you have a conversa-
tion with anyone there ?

A. Yes.

Q. Was Mr. Clawson present?

A. No, sir. Mr. Clawson was on the inside with
this other gentleman you mentioned before, Marco.

Q. At the time you closed the circus did you have
a conversation with Mr. Clawson, or was he present ?

Hagenbeck-Wallace Shows Co. 237

(Testimony of Jack W. Kramer.)

A. Mr. Clawson was present, and then he kept
on leaving and coming back, and coming back and
leaving, to oversee some of the other things going
on on the inside. They were kind of late for the
show, and he kept on going back and forth.

Q. Did you state at that time wThy the circus was
being [369] closed? A. Yes, sir.

Q. To Mr. Clawson?

A. To Mr. Clawson and to Mr. Marco as well.
Mr. Marco kept referring me to Mr. Clawson, be-
cause he said he was not familiar with circuses.

Q. What did you say to Mr. Clawson in that
regard?

A. I told him we would have to close the circus
or be sure the men were all organized.

Q. Did you give him any other reason than that ?

A. Yes, we would have to close it. I told him
there would have to be several repairs made before I
would allow my performers to perform in the show.

Q. I take it this was a conversation with Mr.
Clawson ?

Mr. Combs : It is self-serving.

The Court: Proceed.

Q. By Mr. Schaefer: Go on with the conversa-
tion where you left off, Mr. Kramer, and what you
said in regard to closing to Mr. Clawson. You stated
that several repairs had to be made. Did you men-
tion them?

A. Yes.

Q. What did you say?

238 Fanchon & Marco, Inc., vs.

(Testimony of Jack W. Kramer.)

A. I told him I wouldn't allow anything to be
attached to one pole that was on the end of the big
top down around the entrance, that seemed to be
so cracked — in fact it was cracked — and they had
two bands of iron, one at the [370] top of the place
where it had been split, and it split all the way
through, and a band of iron on the bottom of it.

Q. Was this the main pole?

A. One of the quarter poles. [371]'

CHARLES E. CUNNINGHAM,

called as a witness in behalf of defendant, being first
duly sworn, testified as follows :

Direct Examination [376]

Q. Did you work in this capacity for the Great
American Circus ? A. Yes, sir.

Q. Did you have an opportunity to notice the
condition of the seats ? A. I did.

Q. Where did you join the circus — in Ingle-
wood? A. Yes, sir.

Q. Did you follow through to Pomona'?

A. Yes, sir.

Q. Did you help erect seats in each one of the
places? A. Yes, sir.

Q. Will you tell us the condition of the seats as
you saw them?

A. Well, the condition of the seats was such that
it would retard the erection of the seats in the

Hagenbeck-Wallace Shotvs Co. 239

(Testimony of Charles E. Cunningham.)

proper length of time that was necessary to erect

them.

Mr. Combs : I ask that all of that be stricken.

The Court : Yes, I will strike it.

Q. By Mr. Schaefer: Tell us the condition of the
seats. What was the matter with them, etc. ?

A. Well, the jacks were misfits, that is, the open-
ing [377] in the jacks was of various widths.

Q. What is a jack?

A. A jack is what holds up the stringers that you
put the bible backs on, and then you set your chairs
on top of the bible backs.

Q. What was the matter with them?

A. They were misfits. There were various widths
in the openings, and in order to erect the stringers
on the jacks you would have to choose various and
sundry jacks to make them fit on one stringer, and
some of the jacks were in such shape that you had
to use them in such a manner that they would be
strong enough to be used.

Q. Did this cause any delay?

A. Yes, it delayed the erection of the seats.

Q. Did you examine the cross members?

A. The cross members — you mean the bible
backs ?

Q. Yes.

A. Yes. They were frayed on the ends, frayed by
continuous use over a duration of time, and they be-
come worn and frayed. And may I say what is the
natural action in starting and shipping out in the
spring ?

240 Fanchon & Marco, Inc., vs.

(Testimony of Charles E. Cunningham.)

Q. If you know the custom.

A. To see that all those frayed ends are taken
care of and all worn planks are replaced, so that
they are in good shape, good condition.

Q. Was that done in the case of the equipment
used by [378 J the Great American Circus?

A. No, sir, it showed no signs of being put in
usable condition.

Q. Did you see the decks of the flat cars?

A. I did.

Q. What condition were they in?

A. They were in aged condition. I didn't ex-
amine them closely enough to see if they had any
holes in the decks, but they wTere in aged condition,
and just like any aged material, it is apt to give
way.

Mr. Combs : That part is a conclusion.

Q. By Mr. Schaefer: You didn't examine them
for holes?

A. No. I observed the wagons coming off the
flats, and their action gave me the conclusion that
there were holes in the flats, or weak spots.

Mr. Schaefer: Cross examine.

Cross Examination

Q. By Mr. Combs: These seats were inspected by
the seat inspector at Pasadena, weren't they?

A. Yes, sir, he was there.

<J. And passed, too?

A. After we had tried our best to put them in
the proper condition, yes.

Hagenbeck-Wallace Shows Co. 241

(Testimony of Charles E. Cunningham.)
Q. But they passed inspection?
A. Yes, but after a certain length of time. [379]

CHARLES H. PRIEST, JR.,

called as a witness in behalf of defendant, being
first duly sworn, testified as follows :

Direct Examination [398]

Q. Did you observe the equipment out there in
May of 1939? A. Yes, sir.

Q. What did you observe, first, with respect to
the wagons? A. In what respect?

Q. Well, the wheels.

A. They were all in very poor condition.

The Court : Just tell us what you found, not your
conclusion.

Q. By Mr. Schaefer: In other wTords, why did
you come to any conclusion? We don't want the con-
clusion, but we want to know the things that you
saw, that you observed.

A. Well, the wheels on the wagons were in very
bad shape.

The Court: That doesn't mean anything. I can't
give [399] consideration to that.

Q. By Mr. Schaefer: In what way, Mr. Priest?

A. The whole point, of course, is that it would
be very hard for me to answer that question, because
primarily I was interested in selling the mer-
chandise.

242 Fanchon & Marco, Inc., vs.

(Testimony of Charles H. Priest, Jr.)

The Court : I am not concerned about that.

Q. By Mr. Schaefer: Did you make any observa-
tion of the axles ? Could you determine from looking
at the wagons anything about the axles ? Did you ob-
serve the way the wheels slanted?

The Court: Let him state just what he saw.

A. Well, I could see that the wheels did slant out
at the bottom, where they should have slanted in.
The set was out on a number of the wheels. And the
wheels themselves were in poor condition.

Mr. Combs: That is objected to again.

Mr. Schaefer: I submit, your Honor, he is telling
what he saw.

The Court: But I don't know what "poor" means,
or wThat it means to him.

A. The wheel itself should be in perfect condi-
tion, the spokes should be tight, and the fellies
should be tight.

The Court: Tell us what you saw. Were the
spokes loose?

A. I couldn't say, but the tires were loose on the
fellies. [400]

The Court : You say they were ?

A. Yes, sir. [401]

Q. By Mr. Schaefer: Were you present when the
equipment was loaded on the cars?

A. No, sir.

Q. You were not? A. No, sir.

Q. Did you send out any articles to Baldwin
Park? A. Yes, sir.

Hagenbeck-Wallace Shows Co. 243

(Testimony of Charles H. Priest, Jr.)

Q. For repairs? A. Yes, sir.

Q. Do you have a copy of any invoices or any-
thing which would indicate what you sent out ?

A. Yes, sir.

Q. Can you refresh your recollection from them?

[402]

A. I would have to get them out of my brief
case. I brought them up for that purpose.

The Court: Get your brief case. I thought those
items w^ere admitted.

Mr. Combs: We will admit any items that

Mr. Schaefer: They haven't been.

Mr. Combs: I think we actually paid for most of
them. It was over a thousand dollars.

Mr. Schaefer: I don't think so.

The Witness : Do you want me to enumerate

The Court : Just pick out the bills and show them
to counsel, and they can be marked as an exhibit.

A. These are the original sales sheets of our
records, which, as a record, must be returned to our
files, for our files there, after the case is over. That
wants to be stipulated, your Honor.

The Court : Well, that is up to you.

The Witness : We have to have these records back
for our files.

Mr. Combs : The court might have to have them.

The Court: If the court gets its mark on them,
we won't give them back.

The Witness: I can give you copies of them, but
I can't give you the originals. We have to have them
in our files.

244 Fanchon & Marco, Inc., vs.

(Testimony of Charles H. Priest, Jr.)

Mr. Combs: Did Fanchon & Marco pay all of
these bills, [403] or is this some of the bills we paid?

Mr. Schaefer: I don't know until he reads them.
I have some that we paid.

The Court: They are all included in this state-
ment?

Mr. Combs: I will take counsel's word for those
they paid.

Mr. Schaefer: All right. They are all included in
the statement, and they have all been paid for.

The Court : He says that he will concede that you
furnished and paid for them, so you can take your
bills back.

The Witness: O. K., sir.

Q. By Mr. Schaefer: Did you see the circus at
San Diego?

A. No, sir.

Q. Did you see it at Santa Ana ? A. Yes, sir.

Q. Did you see the equipment leave the train?

A. Yes, sir.

Q. Did you see any of the wagons on the road?

A. Yes, sir.

Q. Did you notice anything particular about any
of the wagons, or wagon? Did you notice any
wheels

Mr. Combs: That is leading and suggestive, I
think.

The Court: Answer.

A. Not while they were being unloaded off the
train. [404]

Q. By Mr. Schaefer: On the street?

Hagenbeck-Wallace Shotvs Co. 245

(Testimony of Charles H. Priest, Jr.)

A. On the street, yes, sir.

Q. What did you see?

A. One wagon that they were pulling down Main
Street in Santa Ana, the wheel was in such con-
dition that

The Court: Just what condition was it in?

A. The bushing was smoking, apparently worn
out.

The Court: Not apparently.

Q. By Mr. Schaefer: Did it appear to be worn?
Or couldn't you tell by looking? Did you examine
the wheel?

A. They took the wheel off after they got down
to the lot, and the bushing was all broken.

Q. Did you see it then? A. Yes, I did.

Q. Were you alone when you saw this wheel
smoking, or was someone with you?

A. No. Mr. Daillard was with me.

Q. Did you observe the wagon later?

A. Yes, sir.

Q. When?

A. At the shop on the show lot in Santa Ana.

[405]

Q. Did you supply any rope — did Mr. Daillard
order any rope from you on that occasion, at Pasa-
dena?

A. He ordered some. Ordinary rope, you mean,
for the top ?

Q. Yes.

A. There were a number of coils, I think, fur-
nished in Pasadena, if I recollect right.

246 Fanchon & Marco, Inc., vs.

(Testimony of Charles H. Priest, Jr.)

Q. Was this equipment furnished at one time or
at one place, or during different times ?

A. Oh, no ; different times.

Q. At each stop? A. That is right.

Q. Did you send equipment to San Diego?

A. No, sir.

Q. But to Santa Ana? A. Yes, sir. [406]

Q. Pasadena? A. Yes, sir.

Q. Some to Pomona? A. Yes, sir.

Q. Did you send some out to Inglewood?

A. Yes, sir.

Q. By Mr. Schaefer: Do you handle rope?

A. Yes, sir.

Q. How long have you handled rope ?

A. Possibly 20 years.

Q. Have you had occasion to examine rope dur-
ing that time ? A. Yes, sir.

Q. Did you examine the rope in this circus?

A. I had occasion to examine, check pieces of
rope on the circus.

The Court: When? [407]

A. At Pasadena,

Q. By Mr. Schaefer : What was the condition of
the rope?

A. It was dry-rotted.

Q. Dry-rotted? A. Yes.

Q. Did you state that to anyone?

A. Yes, sir.

Q. To whom?

A. Mr. Daillard and Mr. Eagles.

Hagenbeck-Wallace Shows Co. 247

(Testimony of Charles H. Priest, Jr.)
Q. Did you tell it to Mr. Clawson?
A. Yes, sir.
Mr. Schaefer: You may cross examine. [408]'

WALTER S. GUICE,

a witness of lawful age, being produced, sworn and
examined on the part of the defendant, on his oath
deposeth and saith:

Direct Examination
By Mr. Arthur: [417]

Q. Can you tell us what the main falls are*?

A. The main falls holds the big top and the
riggings.

Q. What is a fall % A. Pulley block and rope.

Q. That holds the main circus tent'?

A. That is right, and the canvas and the rigging ;
there is four of them. They had a four-pulley top,
one at each pole.

Q. Is that the rope upon which all the riggings
of the various acts and equipment are supported'?

A. Yes, sir, where all the big riggings is hung,
and then they have a ring that they hang on the
quarter pole.

Q. And your rigging was supposed to be hung
onto what % A. From the pole ring of the big top.

Q. Why did you refuse to go up that night?

A. The main fall on the center pole on which our
rigging was hung was bad and I wouldn't take no
chances on it.

248 Fanchon & Marco, Inc., vs.

(Deposition of Walter S. Guice.)

Q. What was wrong with it f [422]

A. The ropes showed dry rot.

Q. That is, the rope? A. Yes, sir.

Q. What was the condition of the rope?

A. It was frayed out and didn't look safe.

Q. And you and the members of your act refused
to go up because of the condition of the rope ?

A. That is right, We called for the manager of
the show and asked him about a chain to lash the
bale ring of the big top to the center pole so if the
rope would break it wouldn't come down, wThich
he did.

Q. The rope of which you speak, if that rope
were, as you say in bad condition, that was the main
supporting rope of the tent itself, wasn't it?

A. Of that one piece, yes, sir.

Q. On the center pole? A. Yes, sir. [423]

Cross Examination

Q. Had you noticed the condition of the main
falls before that time?

A. No, sir, until I seen them break putting up,
and then I went up and examined them when they
had my rigging up. I seen them break when I put
the rigging up and I examined them.

Q. What condition did you find them in when
you examined them?

A. Dry rot, indicating they had been laying
around and not used.

Q. Can you explain a little more fully what you
mean by dry rot?

Hagenbeck-Wallace Shoivs Co. 249

(Deposition of Walter S. Guice.)

A. This rot exists after it is in a real dry place.
It is manila rope, and they generally put a little tar
in it and it drys out, just like you put grease in the
cable, and it lays there and dries out, and dust gets
in there and cuts the fiber and it eventually gets dry,
and when it gets [432] dry it is just like powder; it
falls apart. Manila rope is oiled; it has some kind
of oil in it, and if you aren't using it it dries out and
causes dry rot. Dust gets in it and cuts it, and they
break up from being pulled over iron sticks or iron
edges, and that cuts the fibers, and it finally
weakens. [433]

Recross Examination

A. Since you asked me I will tell you : The ridge
ropes were bad. Of course, that doesn't have any-
thing to do with the canvas ; that is only to raise the
poles with, and after you get it raised the ridge rope
would be slacked off; that is on a pulley, see? That
is the condition I saw in Pasadena ; that is the con-
dition it was in.

Mr. Combs : I move that the last part of that an-
swer "That is what the condition was in Pasadena"
be stricken from the record. That is not responsive
to any question, and is a statement of a conclusion
on the part of the witness. [434]

250 Fanchon dc Marco, Inc., vs.

DEFENDANT'S EXHIBIT No. 1

AGBEEMENT

This Agreement, made and entered into this 11th
day of May, 1939, between Fanchon & Marco, Inc.,
hereinafter referred to as First Party, and Glen-
dale Post #127, Ltd., hereinafter referred to as
Second Party,

Witnesseth :

Whereas, the parties hereto desire to enter into
an agreement whereby First Party shall arrange,
stage, produce, furnish and deliver a three-ring
circus, under canvas, for presentation in the City of
Glendale, Calif., on the dates of June 1st, 1939, with
afternoon and evening performances, on a location
designated as San Fernando Eoad and Allen Ave.,
and hereinafter referred to as "the location"; and

Whereas, Second Party agrees to sponsor said
circus under its auspices.

Now, Therefore, in consideration of the promises
herein contained, the money to be paid First Party
by Second Party, and the services to be rendered
by the First Party, it is mutually understood and
agreed as follows, to wit:

First Party Agrees At Its Own Expense As
Follows :

1. To transport, deliver and erect at "the loca-
tion" all and complete equipment necessary to pre-
sent a three-ring circus under canvas, and a com-
plete sideshow, and to take away said equipment on

Hagenbeck-Wallace Shows Co. 251

completion and leave "the location" in a clean
condition;

2. To stage and produce a three-ring circus last-
ing a minimum of two hours and consisting of ap-
proximately twenty-six (26) displays of circus
entertainment, and including a brass band to play
for the entire performance, afternoon and evening.

3. To supply an adequate amount of circus
posters and to post the same in suitable locations;
to supply copies and mats for newspaper ads and
press material;

4. To direct the publicity;

5. To supply all necessary administrative serv-
ices including an auditor, advance agent, press
agent, business manager and ticket sellers.

6. To supply the general admission tickets ;

7. To furnish two toilets (one for men and one
for women).

8. To pay all salaries for the artists and acts,
labor, transportation, cartage and administrative ex-
penses, including all taxes, levies or assessments,
levied under so-called Social Security Acts or Un-
employment Insurance Laws, and First Party
agrees to hold Second Party harmless from any
claims and demands by any competent authority for
all or any part of such levies or assessments.

9. To pay all federal taxes upon admissions;

10. To carry all necessary Workmen's Compen-
sation Insurance.

Second Party Agrees At Its Own Expense As
Follows :

252 Fanchon & Marco, Inc., vs.

1. To supply a suitable location and to procure
the license to conduct said Circus ;

2. To produce the advance tickets and to con-
duct and carry on an advance ticket sale at least
two weeks prior to the date of the first performance.

3. To furnish any additional toilets required by
law over and above the two furnished by First
Party.

4. To furnish adequate police and fire pro-
tection ;

5. To furnish active working committees re-
quested by First Party.

Both Parties Hereto Agree to the Following:

1. The Gross receipts from the sale of all ad-
vance exchange tickets, all gate admissions, includ-
ing the side show, after deduction of federal taxes
shall be divided seventy percent to the First Party
(70%) and thirty percent (30%) to the Second
Party.

2. Second Party agrees to pay to First Party
all monies received from said advance ticket sale up
to the sum of $1,500.00 and said $1,500.00 is then to
become such a sum portion of the First Party's sev-
enty percent (70%) share of the gross receipts re-
ferred to in the preceding paragraph.

If, by the sale of advance tickets, this sum to be
given by Second Party to First Party does not
reach the sum of $1,500.00, then first Party is to
take out of the general admissions a sum equal to
the difference between the total sum received for
the sale of advance tickets and $1,500.00 and in such

Hagenbeck-Wallace Shows Co. 253

event, said $1,500.00 shall be such a sum portion of
the First Party's Seventy Percent (70%) share of
the gross receipts referred to in the preceding para-
graph in this agreement.

3. First Party will furnish without cost to Sec-
ond Party an advance ticket man who will assist
Second Party in its ticket campaign and will aid
and act as advisor to Second Party.

4. No concessions shall be maintained on the lo-
cation except those operating under the license or
consent of the Second Party, and all revenue from
the sale and operations of such concessions shall be
exclusively retained by the Second Party. Unless
otherwise agreed to, the only concessions to operate
on the location shall be as follows:

Hot Dogs

Balloons

Hamburgers

Canes

Lemonade

Whips

Soft Drinks

Hats & Novelties

Coca Cola

Souvenirs

Popcorn

Frozen Custard

Candy

Tintypes

Cracker jack

Guess Your Weight

Ice Cream Bars &

Scale

Cones

Candy Floss

Peanuts

Parking

5. While it has been agreed that First Party
shall direct the publicity, it is understood that in
most instances the best publicity can be obtained on
the application of the Second Party owing to its

254 Fanchon & Marco, Inc., vs.

local position with the press, etc., and the Second
Party agrees to fully cooperate with the First
Party in obtaining the best publicity and First
Party agrees to defray seventy percent (70%) of
the cost of local newspaper advertising and Second
Party agrees to pay thirty percent (30%) of the
cost of such local newspaper advertising.

6. First Party agrees to carry policy of Public
Liability Insurance, insuring parties hereto against
any claims for injuries to persons or property. Sec-
ond Party also agrees to carry policy of Public Lia-
bility Insurance, insuring parties hereto against
any claims for injuries to persons or property.

7. It is understood and agreed that circum-
stances beyond the control of the First Party, such
as fire, flood, transportation delay, strikes, war or
what is defined in law as "Act of God", shall be an
excuse for non-performance hereunder by either of
the parties hereto, and in such event neither of the
parties hereto shall be liable to the other for such
non-performance.

8. This agreement shall be binding upon the
heirs, administrators, assigns and successors of the
parties hereto.

FANCHON & MARCO, INC.

By

GLENDALB POST #127 AMN.
LEGION

By ARNOLD R. SEIFERTS,

Commander.

[Endorsed] : Filed Nov. 22, 1940.

Hagenbeck-Wallace Shows Co. 255

DEFENDANT'S EXHIBIT No. 2

Agreement dated May 4, 1939, between Fan-
chon & Marco, Inc. and Long Beach Pyramid
No. 43, A. E. O. S. Filed in the District Court
November 22, 1940.

DEFENDANT'S EXHIBIT No. 3

Agreement dated May 27, 1939, between Fan-
chon and Marco, Inc. and Napa Post 113,
American Legion. Filed in the District Court
November 22, 1940.

DEFENDANT'S EXHIBIT No. 4

Agreement dated May 29, 1939, between Fan-
chon & Marco, Inc. and American Legion Post
#13. Filed in the District Court November 22,
1940.

DEFENDANT'S EXHIBIT No. 5

Agreement dated May 19, 1939, between Fan-
chon & Marco, Inc. and Charles Eoe Post #30
of the American Legion. Filed in the District
Court November 22, 1940.

256 Fanchon & Marco, Inc., vs.

DEPENDANT'S EXHIBIT No. 6

Agreement dated May 29, 1939, between Fan-
chon and Marco, Inc. and Oakland American
Legion Committee. Piled in the District Court
November 22, 1940.

DEPENDANT'S EXHIBIT No. 7

Agreement dated May , 1939, between Fan-
chon & Marco, Inc. and Santa Ana Lodge #794
B. P. O. E. Piled in the District Court Novem-
ber 22, 1940.

DEPENDANT'S EXHIBIT No. 8

Agreement dated May 29, 1939, between Fan-
chon & Marco, Inc. and William J. Quinn.
Filed in the District Court November 22, 1940.

DEPENDANT'S EXHIBIT No. 9
Agreement dated May 16, 1939, between Fan-
chon and Marco, Inc. and Santa Monica Cities
Post 123, American Legion. Filed in the Dis-
trict Court November 22, 1940.

DEPENDANT'S EXHIBIT No. 10

Agreement dated May 18, 1939, between Fan-
chon & Marco, Inc. and Ventura Lodge #1430

Hagenbeck-Wallace Shotvs Co. 257

B. P. O. E. Elks. Filed in the District Court
November 22, 1940.

DEFENDANT'S EXHIBIT No. 11

Agreement dated May 6, 1939, between Fan-
chon & Marco, Inc. and D. M. Price. Filed in
the District Court November 22, 1940.

DEFENDANT'S EXHIBIT No. 12

Agreement dated May 6, 1939, between Fan-
chon & Marco, Inc. and Inglewood Council of
Parents and Teachers. Filed in the District
Court November 22, 1940.

DEFENDANT'S EXHIBIT No. 13

Agreement dated May 2, 1939, between Fan-
chon & Marco, Inc. and Bakersfield, California
Lodge No. 266 B. P. O. Elks. Filed in the Dis-
trict Court November 22, 1940.

258 Fanchon & Marco, Inc., vs.

DEFENDANT'S EXHIBIT No. 14

The following telegram was sent to:
Mr. Everett M. Glenn, 709 Capital Bank Bldg.,

Sacramento, Calif.
Mr. Bert Ronzee, Commander, American Le-
gion, 1762 Elm St., Napa, California.
Mr. Ray L. Johnson, Sacramento Memorial

Mausoleum, Stockton Blvd., at El Paraiso,

Sacramento, Calif.
Mr. Fred S. Dean, 400 American Avenue, Long

Beach, Calif.
Mr. Freed Hair, Pyramid #43, Sciots, Long

Beach, California.
Mr. Arnold R. Seifert, Commander Post 127,

American Legion, Glendale, Calif.
Mr. W. F. May, Post #123, American Legion,

Santa Monica, Calif.
Mr. W. F. May, 12216 Dorothy St., Brentwood

Heights.
Mr. Don Price, Ryans Auditorium, Fresno,

California.
Mr. John R. Huff, B. P. O. Elks, Bakersfield,

Calif.
Mr. Russell T. Petis, B. P. O. Elks, Bakers-
field, Calif.
Mr. W. E. McNeil, Ventura Lodge 430, B.P.O.

Elks, Ventura, Calif.
Mr. A. F. Spring, Ventura Lodge 430, B. P. O.

Elks, Ventura, Calif.

Hageribeck-Wallace Shows Co. 259

Mr. Elmer P. Zollner, c/o American Legion
Convention Headquarters, American Le-
gion Memorial Bldg., Oakland, Calif.

Kramer of American Federation of Actors has
called out acts which are members of his organiza-
tion. This and other labor difficulties which have
caused us to miss matinee performances in Santa
Ana and Pasadena necessitates us advising you with
regret we will be unable to fulfill contract for
Circus performance. One of our men will contact
you later.

FANCHON & MARCO, INC.
Sent the night of Pomona Performance, May 31,
1939.

[Endorsed] : Filed Nov. 22, 1940.

MURRAY PENNOCK,

called as a witness in behalf of plaintiff: in rebuttal,
being first duly sworn, testified as follows:

Direct Examination
Q. By Mr. Combs: You have been sworn?
A. I have.

Q. What is your occupation, Mr. Pennock?
A. The show and theatrical business.
Q. How long have you been engaged in that
business? A. Oh, nearly 30 years.

260 Fanchon & Marco, Inc., vs.

(Testimony of Murray Pennock.)

Q. In what capacities?

A. In a managerial capacity, I should say, gen-
erally.

Q. With what circuses'?

A. Well, going back to 1908 and stating them
in chronological order, Norris & Eowe, Sells-Floto,
Bud Atkinson in Australia, and Al G-. Barnes for
12 consecutive years, and maybe one or two others
I missed — Irwin Brothers Wild West, and one or
two experiences intervening.

Q. Were you present at Baldwin Park in the
week preceding the 23rd of May, 1939?

A. Yes, I was.

Q. Who were you with at that time? [438]

A. I was out at the winter quarters on the
Sunday preceding the opening of the Great Amer-
ican Circus.

Q. Did you have occasion at that time to ob-
serve any circus equipment? A. Yes, I did.

Q. What was the occasion for your making that
observation ?

A. Well, I walked around the lot. Naturally,
having been in the circus business all those years,
I was interested, and I walked about the lot a good
deal with Mr. Clawson. I also talked casually to
Mr. Eagles and to Mr. Daillard.

Q. Did you take a look at the equipment at that
time?

A. I looked at the equipment closer previously.

Q. How long previously?

Hagenbeck-Wallace Shows Co. 261

(Testimony of Murray Pennock.)

A. Oh, perhaps a month or six weeks previ-
ously.

Q. Were you familiar with its condition at that
time? A. Yes.

Q. Will you state what the condition of the
wagons was?

A. May I explain ? I came out there — I had been
engaged by M. G. M. as technical adviser of their
circus picture they were preparing, and they had
asked me to set up a typical show of a certain size,
and after that was done they talked about the
rental of equipment which was available in vari-
ous places, and I suggested that we go out to Bald-
win Park and look over the equipment there, which
Mr. [439] Clawson had told me was for rent. I
took two draftsmen, whose names I have forgotten
now, and Stan Rogers, who was one of the art direc-
tors at M. G. M., out there on two or three occa-
sions.

Q. At that time you examined this equipment
minutely, did you not?

A. More or less minutely, yes.

Q. What was its condition ? Was it in good con-
dition, suitable for use at that time ?

Mr. Schaefer: I will object to that, on the ground
that there is no showing that the equipment was
that of the Great American Circus, or that it was
an examination of all of the equipment.

The Court: If he examined all of it, it would be
proper. Did you examine all of the equipment?

262 Fanchon & Marco, Inc., vs.

(Testimony of Murray Pennock.)

A. All of the equipment with respect to the rol-
ling stock, the wagons about which we are now
talking.

The Court: About how many wagons?

A. At that time I believe there were 40 or 50
wagons on the lot.

The Court: Overruled.

A. Many of these wagons were old Al G. Barnes
wagons which had been relegated to the back of the
lot and were obsolete, some of which, as a matter
of fact, I built. But the Hagenback-Wallace equip-
ment I think we went over pretty thoroughly. The
draftsmen were interested from the stand- [440]
point of making drawings, presumably to fill in the
archives out at the studio, should the occasion arise
for building wagons in the future.

Mr. Schaefer: I submit that that isn't an answer
to the question.

The Court: That is argument. What condition
was it in?

A. The wagons, all of the Hagenback- Wallace
wagons were in comparatively good condition.

Q. By Mr. Combs: Suitable for use?

A. Suitable for use.

Q. Did you examine the flat cars at that time?

A. I saw the flat cars, yes.

Q. What wais their condition?

A. The flat cars were in equally good condition.

Q. Did you examine the rigging, tents, drops
and falls?

Hagenbeck-Wallace Shows Co. 263

(Testimony of Murray Pennock.)

A. Not minutely, no. I saw the ropes and rigging
coiled in one of the barns. I saw the canvas rolled
up, but I did not examine it closely, no.

Q. Did you have an opportunity to observe this
equipment again after that date at Baldwin Park?

A. I went out to the opening of the show at
Ingiewood, both afternoon and evening. I left the
studio and spent possibly 45 minutes to an hour on
the lot in the afternoon, while the show was being
prepared, and I went back again about the dinner
hour in the evening, and remained until it had been
partially torn down at night. I left there [441]
about 12:30 or 1:00 o'clock the following morning
after the performance.

Q. Did you see the equipment there?

A. Yes.

Q. What was its condition then, generally ?

A. I thought it was in perfectly usable condi-
tion, such of it as I saw.

Q. What did you see?

A. I saw the big top in the air. I saw many of
the wagons, in fact all of the wagons, I think. I
saw the seats. I saw the poles and the other para-
phernalia incident to the erection of the tent, and
the stage, and ring curbs, and all those properties,
in use. I looked the show over generally, as an ex-
showman would.

Q. All of that show and equipment was in use
at that time, too, was it not?

264 Fanchon & Marco, Inc., vs.

(Testimony of Murray Pennock.)

A. As far as I know, yes. All of it I saw was
in use.

Q. Did you see the show again after that date?

A. I saw the show in Pasadena on the after-
noon of Memorial Day.

Q. Did you observe the main fall rope break
there? A. No, sir.

Q. Did you observe the show erected?

A. It wasn't erected. The side show was up,
and they were putting up the big top at the time I
went over there. At the time I normally expected
the doors to be open the [442] big top was in process
of erection at that time, and I was there for an
hour and a half, and very little or no progress was
made in that hour and a half, so I departed for
home.

Q. In the circus business is it the custom to
rent sleeping cars with or without berth curtains,
pillow cases, sheets and blankets?

A. I have on occasion rented circus sleepers,
and am more or less familiar with the practice in
that connection, and I know of no instance within
my knowledge where sleepers, circus sleepers, as
such, are rented completely equipped.

Cross Examination

Q. By Mr. Schaefer: Mr. Pennock, how long
did your examination take you a month previous
to the Sunday you were out?

A. I was out there on three occasions, I be-

Hagenbeck-Wallace Shows Co. 265

(Testimony of Murray Pennock.)

lieve, as I stated. I think each time we spent from

two to three hours.

Q. How long a time did you spend examining
wagons ?

A. Well, fully half of the time was spent on
the examination of the wagons.

Q. How many wagons did you want"?

A. Did we want? [443]

Q. Yes.

A. Well, that was problematical, because at that
time no definite decision regarding the size of the
show to be portrayed on the screen had been ar-
rived at.

Q. Did you ever rent any of this equipment ?

A. Not that I know of, no.

Q. Your studio didn't rent it?

A. I don't know, because before the actual
filming of the picture I had closed my engagement
with M. GL M.

Q. You don't know of your own knowledge
whether it went out? A. I do not.

Q. The purpose for which you wanted this
equipment was for filming, is that right?

A. Yes.

Q. It wasn't to be rolled from town to town?

A. That is right.

Q. And you could take as much time as you
wanted to put it up? A. That is right.

Q. And the wagons were going to be stationary
all the time? A. That is right.

266 Fanchon & Marco, Inc., vs.

(Testimony of Murray Pennock.)

Q. So you didn't pull any of the wheels off and
examine the axles? A. No. [444]

Q. You made no examination at all, whatever?

A. No.

Q. You weren't interested in whether the wa-
gons had brakes or not?

A. I wasn't particularly interested, no.

Q. What was your interest in the flat cars?

A. The interest in the flat cars at that time was
the fact that they had discussed — there was a se-
quence in the picture showing the circus train in
motion, passing from town to town at night, and it
was supposed to be a night shot, and they were go-
ing to build a miniature train, and they wanted
scale drawings of flat cars and coaches and stock
cars, so that they could portrary this train in mo-
tion and have it a reasonable facsimile.

Q. They weren't going to use any flat cars at
all, then, for drawing purposes? A. No.

Q. So you didn't have any occasion particu-
larly to examine these cars as to their condition?

A. I had examined them previously.

Q. How long previously?

A. I should say 60 days prior to the show going
out.

Q. Did you examine the cars —

A. Thoroughly.

Q. Did you examine those that went out with
the Great American Circus? [445]

Hagenbeck-Wallace Shotvs Co. 267

(Testimony of Murray Pennock.)

A. I must have examined those, because I ex-
amined all of them.

Q. Do you recall now car No. 65, which was a
stock car?

A. I can't identify the cars by number in my
mind, no.

Q. Did you have in mind at the time you exam-
ined those cars and now, when you state that they
were in good and usable condition, that car 65 had
to have the air brakes cleaned, eight journal boxes re-
packed, that one truck spring was broken, that they
had to have repairs made and the car jacked, that
three brake beam safety bar bolts and lock nuts %
by 3 were worn out, that one brake bell crank was
broken, that one bracket was broken, that two bolts
and lock nuts % by 2% were worn out, that one
brake chain bolt % by 2% was worn out, that one
bell crank pin was worn out, and that two cotter
keys were worn out, all on car 65? Did you know
that when you made that examination?

A. Not in detail, no, sir.

Q. When you examined car 85, a flat car, did
you know that one piece of train line pipe l1/^ by
16 was rusted and needed replacing, that one coup-
ling 114 had the threads broken, that two ends of
pipe had to be threaded, that there were four con-
nections that had to be repaired, that two "IT" pipe
clamps V2 by 3 were worn out, that one pair SH
wrought steel wheels had worn flanges on them,
that two journal bearings, 9 inches, were worn [446]

268 Fanchon & Marco, Inc., vs.

(Testimony of Murray Pennock.)
out, that two dust guards 9 inches were worn out,
that four journal box bolts and lock nuts 1% by 1.6
were worn out, that one brake connecting cotter
was worn out, that the wheels were badly worn,
that eight journal boxes had to be repacked, that
three journal bearings were worn and that the air
brakes had to be cleaned'? Did you know that when
you inspected car No. 85?

A. I knew many of them, yes. None of those
were major defects.

Q. Did you hear Mr. Kettring, of the Santa
Fe, testify? Did you hear him testify that some
things violated the Interstate Commerce laws?

A. Yes, sir.

Q. Did you hear him state that they had to be
repaired before they would carry them on their
lines? A. I did.

Q. When you examined car No. 87, did you
know at that time that the air brakes had to be
cleaned, that eight journals had to be repacked, that
six journal bearings were worn out, that four safety
bar bolts and lock nuts % by 2, were worn out?
Did you know that when you examined car No. 87?

A. Not in detail.

Q. Did you know when you examined car No.
80, a flat car, that one pair of SH wrought steel
wheels had a worn flange, that two journal bearings
9 inch were worn out, [447] that two dust guards
9 inch were worn out, that four journal box bolts
and lock nuts 1% by 16 were worn out, that one

Hageribeck-Wallace Shotvs Co. 269

(Testimony of Murray Pennock.)
top rod was repaired because it was cut by the
axle, that there were two connecting pins that had
to be repaired, that one journal bearing 9 inch
was wrorn out, that eight journal boxes had to be
repacked, that the air brakes had to be cleaned,
and that there had to be labor performed on those
cars? Did you know that when you examined
car 80?

A. Again not in detail, no, sir.

Q. When you were examining car 88, which
was a flat car, did you know that two pair of SH
wrought steel wheels had worn flanges, that four
journal bearings 9 inch were worn out, that four
dust guards were worn out, that eight journal box
bolts and lock nuts were worn out, that there had
to be labor performed on the wheels, that eight
journal boxes had to be repacked, that two journal
bearings were worn out, that two connecting cotter
keys had to be replaced because they were worn
out, and that the air brakes had to be cleaned?
Did you know that when you examined car 88?

A. Again not in detail, no, sir.

Q. Did you know when you examined car 84,
another flat car, that the air brakes had to be
cleaned, that one train line nipple l1/^ by 6 had to
be replaced because it was worn out, that one S'L
angle cock had a leaky core, that one connection
had to be repaired, that one U-clamp needed [448]
repairing, that eight journal boxes had to be re-
packed, that five journal bearings were worn out,

270 Fanchon & Marco, Inc., vs.

(Testimony of Murray Pennock.)
that one pair SH wrought steel wheels had worn
flanges, that two journal bearings were worn out,
that two dust guards were worn out, that four box
bolts and lock nuts 1% by 16 were worn out, that
labor was required on the wheels, that one side
bearing bolt and lock nut % by 2 was worn out ? Did
you know that when you examined car 84?

A. I knew there were some flanges that nedeed
attention and some journals that needed attention,
yes.

Q. And you considered those minor details'?

A. Yes, sir.

Q. Did you know when you examined car 82, a
flat car, that there were eight journal boxes re-
packed, that the air brakes had to be cleaned, and
that one journal bearing 9 inch was worn out? Did
you know that?

A. Not all of it, no, sir.

Q. Did you know on car No. 81, a flat car, that
eight journal boxes had to be repacked, that the
air brakes had to be cleaned, and that seven journal
bearings 9 inch were worn out? Did you know that
when you examined car 81?

A. I knew some of it, but not all of it.

Q. Did you know when you examined car 52,
which was a passenger car, that there were three
carrier iron bolts and lock nuts that were worn out,
and three additional ones % by 5 were worn out, and
three additional ones % by 4 were [449] worn out,
and that twelve journal boxes had to be repacked,

Hagenbeck-Wallace Shows Co. 271

(Testimony of Murray Pennock.)
and two journal bearings had to be replaced be-
cause worn out, and that the air brakes needed
cleaning? Did you know that when you examined
passenger car No. 52 ?

A. You can't know, can't tell whether an air
brake needs cleaning until the car is connected onto
a train.

Q. Isn't that an element that you must take
into consideration?

A. No, because air brakes are automatically
cleaned and must be cleaned every so often when
the train is in operation. The date of the cleaning
is stenciled on the brakes, and when the time comes
for subsequent cleaning it has to be taken care of.

Q. Did you examine the stenciling on the brakes %

A. I saw stenciling on the brakes of some of
the cars which stated that the air had been tested
only a week or two prior to the Hagenback- Wallace
Show coming in. It bore the date of the preceding
September, 1938.

Q. Were these some of the cars that w^ere with
the Great American Circus?

A. I don't know.

Q. And with car 50, another passenger car, did
you know that there was one pair of SH wheels
that had worn flanges, that two journal bearings
9 inch were worn out, that two dust guards were
worn out, and that a full flange had to be restored
to restore the wheels to service, that [450] there
were wheels that required labor, and that twelve

272 Fan chon & Marco, Inc., vs.

(Testimony of Murray Pennock.)
journal boxes had to be repacked, and two journal
bearings 9 inch were worn out, and that one journal
wedge had to be drop-forged, and that the air brakes
had to be cleaned? Did you know that when you
examined car 50, a passenger car?

A. I think I knew everything that was faulty
in connection with car 50, because I had talked
to Clawrson about leasing that car myself.

Q. And you thought it was in good, usable con-
dition? A. Definitely, yes.

Q. But you thought it was in usable shape for
taking over to the studio?

A. No. I was contemplating a tour of Canada
with a negro choir, the Hall-Johnson Choir, and
Mr. Clawson was making desperate efforts to lease
me two Hagenback- Wallace cars.

Q. And car No. 45, a passenger car, do you
remember that?

A. I know the No. 45 car, yes, sir.

Q. Did you see anything wrong with that car?

A. I don't recall specifically, no. The No. 50
car was the car I was chiefly interested in.

Q. Can you tell me whether you examined car
No. 45 in making your inspection?

A. I knew, as any circus man knows, of course,
that there were things wrong with all of those cars.

[451]

Q. I am talking about car 45 now.

A. I can't state specifically.

Eagenbeck-Wallace Shows Co. 273

(Testimony of Murray Pennock.)

Q. You didn't know, then, that there was one
wood end sill patch that was decayed on that, that
had to be replaced? A. No.

Q. Did you know that one vestibule diaphragm
had to be straightened on the car because it was
bent? A. I saw that, yes.

Q. And that there were three carrier iron bolts
and lock nuts that were worn and loose? Did you
see that? A. I think so.

Q. Did you know that twelve journal boxes had
to be repacked as per Rule 66 ?

A. The journal boxes on every railroad car
have to be packed frequently.

Q. And that one journal bearing 9 inch had
to be replaced?

A. Journal bearings have to be replaced fre-
quently for any car in service.

Q. Did you examine passenger car No. 46?

A. Among the others, yes.

Q. Do you remember anything about that?

A. No, not particularly.

Q. That was in good condition too, was it?

A. I didn't say any of the lot were in good
condition. [452] I said they were in usable con-
dition.

Q. Would you say the cars were not in good
condition %

A. They were in comparatively good condition,
usable condition. To begin with, of course, they are
wooden cars, and are quite serviceable for use in

274 Fanchon & Marco, Inc., vs.

(Testimony of Murray Pennock.)
circus movements, where they would not be con-
sidered good sleeping cars by the master mechanics
of the Santa Fe or any other railroad, for use in
passenger traffic, where train speeds are rated on a
faster basis than the movements of a circus. The
circus probably depended upon the equipment mov-
ing under specific running orders. I was traffic
manager of the Barnes Circus for seven years, and
under running orders of 20 or 25 or 30 miles an
hour those cars w^ere usable for service of that
description, where they would not be considered
usable by the Interstate Commerce Commission or
a railroad man for passenger service work, like
the Santa Fe Chief.

Q. You say 20 or 25 miles an hour would be the
maximum ?

A. I didn't say the maximum. I said that would
be the average speed at which the train was trans-
ported.

Mr. Schaefer: No further questions. [453]

PATRICK GRAHAM,

called as a witness in behalf of plaintiff in rebut-
tal, being first duly sworn, testified as follows :

Direct Examination
Q. By Mr. Combs: You have been sworn?
A. Yes, sir.

Hagenbeck-Wallace Shows Co. 275

(Testimony of Patrick Graham.)

Q. Where is your place of residence?

A. Pasadena, California.

Q. Where?

A. 985 North Marengo Avenue.

Q. What is your occupation?

A. Circus employee.

Q. How long have you been engaged in that
capacity? A. 19 years.

Q. What character of work did you undertake
during that 19 years?

A. All the way from cook house punk up to
head porter.

Q. For what circuses?

A. I started on the John Robinson Show; Sells-
Floto; Hagenback- Wallace ; Sells Brothers; Al G.
Barnes; McCullough Brothers.

Q. Did you work for the Great American
Circus? A. Yes, I did.

Q. And that was in May of 1939?

A. That is right. [454]

Q. Who employed you?

A. Mr. Eagles employed me.

Q. And when ? A. Friday morning.

Q. Before it went over to Inglewood?

A. Before it went over to Inglewood.

Q. Did you do anything when he employed you,
or did you just wait around?

A. No. I always worked 24 hours a day when
I worked any.

Q. And you went to Baldwin Park?

276 Fanchon & Marco, Inc., vs.

(Testimony of Patrick Graham.)

A. Yes, sir.

Q. What did you do when you got there?

A. He told me to take one of his trucks and
come over to Los Angeles and pick up men.

Q. For what purpose ? A. For laborers.

Q. Did you do so? A. I did so.

Q. What were you to get? A. Men.

Q. By Mr. Combs : How many did you get ?

A. I picked up 25 on the first load. I lost two
on the way over, and stopped and picked up two
more at Baldwin Park, and I had 21 when I
wound up.

Q. Did you go for more men after that? [455]

A. I made quite a few trips, yes, sir.

Q. Were they experienced circus hands or
green?

Mr. Schaefer: I object to that as calling for a
conclusion of the witness.

Mr. Combs : I will withdraw it.

Q. Is that all you did there at Baldwin Park?

A. No. I had charge of the sleeping cars.

Q. What was your official capacity?

A. Head porter.

Q. In that connection did you have occasion to
observe the sleepers?

A. I had four or five occasions to observe them.

Q. Did you have charge of them?

A. I had charge of them.

Q. What did you do with relation to the sleepers
before vou left Baldwin Park?

Hagenbech-Wallace Shows Co. 277

(Testimony of Patrick Graham.)

A. You see, I have been a head porter before in
other shows. That is my business.

Mr. Schaefer: If the court please, — —

A. And I carry my own crew of experienced
porters.

Mr. Schaefer: I want to enter an objection that
it is not responsive.

The Court : Just answer the question.

Q. By Mr. Combs: You carry your own crew
of porters? A. That is right.

Q. Did you have that crew there? [456]

A. I did.

Q. Did you put them to work on these cars?

A. I did.

Q. What did you direct them to do ?

A. I told them to clean the cars.

The Court: What did they do?

A. They cleaned the cars up.

Q. By Mr. Combs: From end to end; is that
right? A. From end to end.

Q. With disinfectants?

A. With disinfectants.

Q. Relate exactly what you had them do in con-
nection with cleaning the cars?

A. As was customary, we took all the mattresses
out and set them out in the sun and aired them, and
if there was any spots on them that we could wash
off, we washed them off. They was fairly new,
bought brand new in 1938, in Indiana, out of Chi-
cago, for Howard Yberry in Chicago.

278 Fanchon & Marco, Inc., vs.

(Testimony of Patrick Graham.)

Q. Proceed.

A. And there was not much work on cleaning
the mattresses, so the men went back inside after
they got the mattresses out, and proceeded to clean
the cars, taking the wooden slats off of the beds. As
you know, our beds do not have springs. Springs
are bad for the kidneys, so we have wooden slats
across the bunks. They took all the slats out and
washed them with disinfectants and washed the
cars down [457] with disinfectants, and made what-
ever minor repairs was supposed to be made on the
berths.

Q. Was that all you did there ?

A. I sent the sheets out that we had.

Q. How many sheets did you have?

A. We had 67 that was originally Hagenback-
Wallace sheets, that was left there by the people
that didn't want to take them.

Q. What usually happens when a circus comes
in to winter quarters with relation to sheets, pillow
cases and blankets?

Mr. Schaefer: I object to that.

The Court : Sustained as to what usually happens.

Q. By Mr. Combs: What is the custom?

Mr. Schaefer: I object to the custom.

The Court: Sustained.

Q. By Mr. Combs : Then you needed more than
67 sheets for this equipment?

A. Yes, it is customary to have a few more than
that.

Hagenoech-Wallace Shows Co. 279

(Testimony of Patrick Graham.)

Q. With how many cars?

A. They told me they was going to sleep 267
people.

Q. Did you contact or discuss the matter with
Eagles or anyone else?

A. I think they got a little mad at me. I dis-
cussed it too many times with them.

Q. You told them you needed sheets, pillow
cases and [458] blankets'? A. Yes, sir.

Q. And you finally got them?

A. Yes, after I worried Mr. Daillard until he
was about sick.

Q. And you got them before you left Baldwin
Park, didn't you?

A. Yes. They brought them over about 7:00
o'clock Monday evening.

Q. And that was at Ingle wood?

A. At Inglewood the beds was made up.

Q. Were they dirty or clean?

A. Fairly clean. I slept in them myself, and
Mr. Eagles slept in them, and everybody else slept
in them. There was no complaint at the time of
the beds being dirty.

Q. Later on you got some berth curtains?

A. That is right.

Q. When was that? A. At San Diego.

Q. Did anything transpire with relation to berth
curtains ?

A. I had a little difficulty in getting berth cur-
tains.

280 Fanchon & Marco, Inc., vs.

(Testimony of Patrick Graham.)

Q. Did you ask Eagles for them?

A. I asked Mr. Eagles for them, and he referred
me to Mr. Daillard, because they made a ruling on
the show that we couldn't purchase nothing with-
out the purchasing agent's [459] order.

Q. Who was the purchasing agent!

A, Well, they had a couple of them up there.
If you wanted one you couldn't find him, so we used
the other one.

Q. Which one did you

A. I finally got Mr. Daillard to go down with
me.

Q. Did you have occasion to observe the condi-
tion of the flat cars in this circus?

A. Very much so.

Q. What was their condition?

A. I would say they was good. I have worked
on worse.

Q. By Mr. Combs: What was the condition of
the runs? A. Very good.

Q. What was the condition of the wagons?

A. Good.

Mr. Schaefer: I will object to that and move to
strike the answer on the ground that there is no
foundation laid for the answer to that question.

The Court: The court will consider it, if it has
any value.

Q. By Mr. Combs: There was a toilet in one of
these cars. What was the style of the toilets in these
fears? [460]

Hagenbeck-Wallace Shows Co. 281

(Testimony of Patrick Graham.)

A. We had two lavatories in each car, naturally,
one at each end, for both sexes, the women on one
end and the men on the other. The lavatories was in-
spected in the Santa Fe shops over here in Los
Angeles.

Q. Did they pass them at that inspection ?

Mr. Schaefer: Just a minute. I object to that on
the ground that no foundation has been laid for it.

The Court: Sustained.

Q. By Mr. Combs: Did the Santa Fe direct you
to do anything in the lavatories?

A. No.

Mr. Schaefer: I object to that on the ground — —

The Court : Well, he has answered no, and the an-
swer is against him.

Mr. Schaefer: Well, I can't hear his answers,
your Honor.

The Court: Speak so that he can hear you.

Q. By Mr. Combs: All right. What was the style
of the lavatories there'? Were they flush or non-
flush lavatories?

A. They would flush.

Q. The toilets in particular, how were they
flushed?

A. They had a ratchet on the side, and all you
had to do was just push down and the toilets flushed.

Q. Was that the case with all of these toilets?

A. That is right. [461]

282 Fanchon & Marco, Inc., vs.

(Testimony of Patrick Graham.)

Cross Examination

Q. By Mr. Schaefer: Mr. Graham, how long
have you served as porter with circuses?

A. 12 years.

Q. In the capacity of porter?

A. In the capacity of porter.

Q. And you were the one that was in charge of
these sleepers ; is that right ? A. That is right.

Q. What was the condition of the floors of the
sleepers, the carpets?

A. Mr. Carter, who was boss porter, had new
carpet put in.

Q. I am asking you the condition of these cars
as they were in May, 1939 ? A. They was good.

Q. Were there any holes in the carpets?

A. No, sir.

Q. Were you present this morning when Tiny
Kline testified ? A. Yes, sir, I was.

Q. Did you hear her testimony?

A. Yes, I was here and I heard it.

Q. You say there were no springs in these
sleepers? [462] A. No, sir.

Q. The mattresses were new ?

A. They was new in the spring of 1938.

Q. That was the year before?

A. That is right.

Q. Did you purchase them?

A. Mr. Nick Carter purchased them.

Q. Were you porter, when they were purchased,
on these cars?

Hagenbeck-Wallace Shotvs Co. 283

(Testimony of Patrick Graham.)

A. I was through Indiana when they was pur-
chased.

Q. And you saw these mattresses purchased in
Indiana in 1938? A. Yes.

Q. What kind of mattresses were they?

A. They was cypress mattresses with a cotton
filling.

Q. Did they have any springs in them?

A. No, sir.

Q. Then there were no springs in the beds at
all? A. No.

Q. These 67 sheets, were they furnished?

A. They was just there.

Q. And they were taken?

A. We used them, yes.

Q. And you had 267 people to sleep?

A. That is right,

Q. You don't supply berth curtains every time a
car [463] goes out, buy new ones ?

A. It is according to who takes the show out.

Q. Were there any berth curtains for these
sleeping cars out at winter quarters ? A. No.

Q. What happened to them?

A. I would have to explain that.

Q. Don't you ever have berth curtains for these
cars?

A. In certain circumstances, yes. There was a
little difficulty on the Hagenback- Wallace Show
when it closed, and the people took what they could
carry, and the berth curtains was pretty good ma-

284 Fanchon & Marco, Inc., vs.

(Testimony of Patrick Graham.)

terial, so they took them, and the blankets and

sheets.

Q. They didn't take the mattresses, did they?

A. They are a little too bulky to carry.

Q. You say the car was fairly clean. Just what
character of cleanliness is fairly clean? Does that
mean partly dirty?

A. No, sir. You see, we always fumigate cars.

Q. That is the law, isn't it?

Mr. Combs: He doesn't know the law.

Q. By Mr. Schaefer: Is that the law?

The Court: Well, he is asking what he did. He is
not asked about the law.

Q. By Mr. Schaefer: Are you required to fumi-
gate them ?

A. To a certain extent, yes. [464]

Q. They were fumigated ?

A. No. We used another method.

Q. You didn't fumigate?

A. We didn't have time to fumigate.

Q. When did you begin getting the cars ready?

A. Friday morning at 7 :30.

Q. And you left the winter quarters what time?

A. Monday evening.

Q. So you worked on them from Friday until
Monday? A. Yes, sir.

Q. You say you had no complaints about cleanli-
ness. You were here this morning when the seven
ladies from the Fanchonettes were here?

A. My time was taken up entirely in

Hagenbeck-W allace Shows Co. 285

(Testimony of Patrick Graham.)

Q. You did say the toilets were all in good, clean,
working condition?

A. The toilets were in good condition.

Q. Did you say the water was flushing in all the
toilets? A. It was. [465]

CHARLES W. NELSON,

recalled as a witness on behalf of plaintiff in re-
buttal, testified further as follows :

Direct Examination
A. Yes. Mr. Clawson and myself and some other
individual was standing in what was afterwards to
become the backyard of the show, as we call it, and
there was a truck being unloaded just in front of us
by a couple of young fellows. They were unloading
the calliope off of the tail-boards, and instead of
letting it slide down straight, they had it at an
angle, so it was at an angle, and it slipped and
struck the ground and toppled over. [467]

[Endorsed]: Eiled March 12, 1941.

[Endorsed]: No. 9779. United States Circuit
Court of Appeals for the Ninth Circuit. Fanchon
& Marco, Inc., a Corporation, Appellant, vs. Hagen-
beck- Wall ace Shows Company, a Corporation, Ap-
pellee. Transcript of Record. Upon Appeal from

286 Fanchon & Marco, Inc., vs.

the District Court of the United States for the
Southern District of California, Central Division.
Filed March 29, 1941.

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

No. 9779

FANCHON & MARCO, INC., a corporation,

Appellant,

vs.

HAGENBECK- WALLACE SHOWS COMPANY,

a corporation,

Appellee.

STATEMENT OF POINTS RELIED UPON
AND DESIGNATION OF RECORD.

Point I.

The following paragraphs of the Findings of Fact
are not supported by the evidence :

II, III, IV, IX, X, XI, XIII and XVI.

Point II.

The District Court erred in drawing inferences
from the non-production of evidence, in paragraphs
IX and X of the Findings of Fact.

Hagenoeck-Wallace Shows Co. 287

Point III.
That the judgment is not supported by the Find-
ings of Fact and Conclusions of Law.

Point IV.

The District Court erred in the admission of testi-
mony objected to by appellant.

DESIGNATION OF PARTS OF RECORD NEC-
ESSARY FOR CONSIDERATION OF THIS

CASE.

District Clerk's

Index

page

Complaint 2

Answer to Complaint 12

Counterclaim 18

Reply to Counterclaim 21

Amended Counterclaim 23

Reply to Amended Counterclaim 26

Certificate of Pretrial hearing 31

Pretrial Order 29

Findings of Fact and Conclusions of Law 33

Decision 33

Judgment 42

Notice of Appeal 44

Order Extending Time to file record on

appeal 49

Bond on Appeal 45

Designation of contents of record on ap-
peal 47

288 Fanchon & Marco, Inc., vs.

District Clerk's
Index
page
Amended Designation of Contents of

Record on appeal 48

This specification of points relied upon,
and the designation of the record.
That portion of the reporter's transcript of the
testimony as follows:

Page

Line to Page

Line Incl.

Paul Eagles:

18

5

31

12

36

21

37

2

42

8

42

13

55

23

56

12

64

12

64

22

68

17
19

68

20
3

72

6

73

7

82

23

83

9

83

25

84

11

Charles W. Nelson

:

95

16

21

96

7

12

413

11

18

George Singleton:

107

5

12

110

26

111

4

111

12

20

113

17

21

116

6

24

Hagenbeck-Wallace Shotvs Co. 289

Page Line to Page Line Incl.

Ralph J. Clawson

133

5

134

24

136

9

137

8

145

13

22

148

9

15

155

12

156

18

159

17

26

J. V. Austin:

301

17

302

8

302

17

303

14

309

11

13

309

20

310

15

Murray Pennock:

385

13

388

17

389

16

399

22

Pat Graham:

402

7

404

8

405

16

19

406

16

407

26

408

12

409

20

411

12

20

Marco Wolff:

179

15

181

14

185

6

26

Patty Hackett:

223

5

227

12

Tiny Kline :

233

9

234

1

290 Fanchon & Marco, Inc., vs.

Page Line to Page Line Incl.

Wayne Dailard:

246

7

26

247

3

26

248

7

249

15

250

15

257

7

252

18

22

Glenn Hall:

265

1

266

7

R. V. Kettring:

284

13

288

12

Ted Ducey:

289

20

293

17

294

23

295

26

Jack W. Kramer:

314

8

315

15

318

23

319

4

Charles E.

Cunningham:

325

5

327

16

Charles H.

Priest, Jr.:

Walter S. Ghiice:

347

11

349

2

353

4

21

355

16

356

6
12

368-A

9

369

17

378

12

379

6

380

8

17

Hagenbeck-Wallace Shows Co. 291

Dated: March 28th, 1941.

MacFARLANE, SCHAEFER,
HAUN & MULFORD,
JAMES H. ARTHUR and
WILLIAM GAMBLE
By HENRY SCHAEFER, JR.,

Attorneys for Appellant.

Received copy of the within Statement this 28th
day of March, 1941.

COMBS & MURPHINE,

Attorneys for Appellee.

[Endorsed] : Filed Mar. 29, 1941. Paul P. O'Brien,
Clerk.

[Title of Circuit Court of Appeals and Cause.]

APPELLEE'S DESIGNATION OF DOCU-
MENTS, RECORDS AND PROCEEDINGS
TO BE INCLUDED IN RECORD ON AP-
PEAL, AND TO BE INCLUDED IN THE
PRINTED TRANSCRIPT THEREOF.

Comes now the Appellee, Hagenbeck-Wallace
Shows Company, a corporation, within ten days of
the date of the service upon it of Appellant Fan-
chon & Marco, Inc's State of Points Relied Upon
and Designation of Record, and designates the fol-
lowing documents, records and proceedings, and
portions of the record which it believes necessary to
a proper determination of the above entitled case

292 Fanchon & Marco, Inc., vs.

on appeal, including portions of the reporter's
transcript of testimony received during the trial.

I.

Appellee's Exhibits A-l and A-2.

II.

Appellant's Exhibits 1 to 17 inclusive.

III.

The following portions of the reporter's tran-
script of the testimony and proceedings before the
trial court, as set forth by line and page, as follows:

1. Page 2, line 19, to page 9, line 15 inclusive,
being certain preliminary statements and stipu-
lations,

2. Page 10, line 8 to page 18, line 4; page 31,
line 13 to page 36, line 20 ; page 37, line 3 to page 42,
line 7; page 42, line 14 to page 50, line 8, being all
of the remainder of the direct examination of Paul
Eagles, beyond that requested by Appellant herein.

3. Page 56, line 13 to page 56, line 15; page 64,
line 23 to page 67, line 3 ; page 70, line 6 to page 72,
line 7; page 85, line 8 to page 89, line 14; page 91,
line 12 to page 92, line 19, being portions of the cross
and redirect examination of Paul Eagles.

4. Page 93, line 1 to page 95, line 15; page 95,
line 22 to page 96 , line 6 ; page 96, line 13 to page 98,
line 26, being all of the remaining examination of
Charles W. Nelson not requested by Appellant.

5. Page 101, line 1 to page 107, line 4 ; page 107,
line 13 to page 110, line 26 ; page 111, lines 5 to 11 ;

Hagenbeck-Wallace Shoivs Co. 293

page 111, line 21 to page 113, line 16; page 113,
line 23 to page 116, line 5 ; page 116, line 25 to page
117, line 24, being all of the remaining examination
of George Singleton not requested by Appellant.

6. Page 125, line 1 to page 133, line 4 ; page 134,
line 25 to page 136, line 8; page 137, line 9 to page
145, line 12; page 145, line 23 to page 148, line 8;
page 148, line 16 to page 149, line 4 ; page 158, line 3
to page 159, line 16; page 160, line 1 to page 161,
line 14, being portions of the testimony of Ralph J.
Clawson not requested by Appellant herein.

7. Page 299, line 1 to page 301, line 15 ; page 302,
line 9 to page 302, line 16 ; page 303, line 15 to page
309, line 10, being portions of the testimony of J. V,
Austin not requested by Appellant herein.

8. Page 312, line 1 to page 314, line 7 ; page 317,
line 3 to page 318, line 22, being portions of the
testimony of Jack W. Kramer not requested by Ap-
pellant herein.

9. Page 327, line 19 to page 327, line 26, being
portions of the testimony of Charles E. Cunningham
not requested by Appellant herein.

10. Page 350, line 14 to page 353, line 3; page
354, line 11 to page 355, line 6, being portions of the
testimony of Charles H. Priest, Jr. not requested by
Appellant herein.

11. Pages 384, line 4 to page 388, line 7; page
388, line 18 to page 389, line 11, being portions of
the testimony of Murray Pennock not requested by
Appellant herein.

294 Fanchon & Marco, Inc., vs.

12. Page 400, line 1 to page 402, line 6 ; page 404,
line 9 to page 405, line 15 ; page 405, line 20 to page
406, line 11; page 408, line 4 to page 408, line 11;
page 409, line 21 to page 411, line 11, being portions
of the testimony of Pat Graham not requested by
Appellant herein.

13. Page 413, line 6 to page 413, line 10, being
portions of the testimony of Charles W. Nelson not
requested by Appellant herein.

14. Page 212, line 14 to page 212, line 25, being
portions of testimony of Marco Wolff.

Dated this 1st day of April, 1941.

COMBS & MURPHINE
By LEE COMBS,

Attorneys for Appellee.

Received copy of the within Designation this 1st
day of April, 1941.

MacFARLANE, SCHAEFER,
HAUN & MULFORD,
By W. F.

Attorneys for Appellant.

[Endorsed]': Filed Apr. 2, 1941. Paul P. O'Brien,
Clerk.

[Title of Circuit Court of Appeals and Cause.]

STIPULATION

Whereas, the Appellee has designated for inclu-
sion in the printed record certain exhibits being Ap-
pellant's exhibits 1 to 13, and

Hagenbeck-Wallace Shotvs Co. 295

Whereas, it is agreed upon by the Appellant and
by the Appellee, through their respective counsel
undersigned, that for the consideration of this case
it is unnecessary that all of said exhibits be printed
in the record.

Now, Therefore, It Is Hereby Stipulated, that
Appellant's Exhibit 1 is to be reproduced in its en-
tirety in the printed record and that Exhibits 2 to
13 inclusive may be omitted except a notation as to
the parties thereto and the date of execution.

Dated: April 9, 1941.

COMBS & MURPHINE
By LEE COMBS

Attorneys for Appellee
MacFARLANE, SCHAEFER,
HAUN & MULFORD,
JAMES H. ARTHUR and
WILLIAM GAMBLE
By HENRY SCHAEFER, JR.,
Attorneys for Appellant.

Good cause appearing therefor,
It Is Hereby Ordered, that the printed record
may be made to conform to the above stipulation.

Dated: April 14,1941.

CURTIS D. WILBUR,

Judge of the Circuit Court of
Appeals.

[Endorsed]: Filed April 14, 1941. Paul P.
O'Brien, Clerk.

IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Fanchon & Marco, Inc., a corporation,

Appellant,

vs.

Hagenbeck-Wallace Shows Company, a corporation,

Appellee.

APPELLANT'S OPENING BRIEF.

Macfarlane, Schaefer, Haun & Mulford,
James H. Arthur and
William Gamble,

1150 Subway Terminal Building, Los Angeles,
^\ Attorneys for Appellant.

—

Parker & Baird Company, Law Printers, Los Angeles.

. ;•• ='«4'i ;:e^m'. ^. :' : ■■■■■■„■■ ■ , -,^ . ^>m&^J&$

M^w: .

TOPICAL INDEX.

PAGE

Statement of pleadings and facts disclosing basis of jurisdiction 1

Statement of case 5

Specifications of Error 7

Argument 13

Point I. The court erred in finding that there had been a
waiver by the appellant of the terms of the contract which
provided that the equipment when delivered in Inglewood
would be in good condition and ready for use 13

Point II. The court erred in concluding that a presumption
arose because the appellant failed to produce certain physi-
cal evidence, towit, some rope which was not in appellant's
possesion but was in the possession of appellee, and in mak-
ing a finding upon such erroneous presumption 23

Point III. The finding of fact that the property delivered by
appellee to appellant at Inglewood was at the time of deliv-
ery in good condition and ready for use, is not supported
by the evidence 26

Point IV. The court erred in finding that the appellant com-
pany engaged in the show business was familiar with the
circus business and knew about ropes, and that it must have
known how long the rope would likely continue in use 42

Point V. The court erred in finding that there was no dry
rot in the rope and that dry rot could not be detected by
a person looking at it, and that the witnesses had no special
knowledge 44

PAGE

Point VI. The court erred in rinding that there was no evi-
dence that the wagons had been greased or oiled and draw-
ing a conclusion therefrom that they had not been greased or
oiled, and at the same time finding that the appellant em-
ployed a staff of efficient showmen as heads of the several
departments 50

Point VII. The court erred in concluding that the appellant
accepted the property "without discovering any fault of any
sort or fashion", and then immediately concludes further that
the appellant "assumed to make reconditioning for such
needed repairs as were apparent" 51

Point VIII. The court erred in concluding that appellant
closed the circus because threatened with a closed shop by
labor unions 53

Point IX. Opinion evidence. The admission of opinion testi-
mony must be preceded by a proper foundation showing that
the witness is qualified as an expert by reason of his supe-
rior knowledge and it must be shown that he has had an
opportunity for observation in order to draw his conclusion
therefrom 55

Point X. Opinion evidence 57

Points XI and XII. Opinion evidence 58

Point XIII. The judgment is not supported by the findings
in that there is no finding to sustain the allegation of the
complaint that the appellee made an effort to mitigate dam-
ages as alleged in its complaint 59

Conclusion 60

TABLE OF AUTHORITIES CITED.

Cases. page

Craig v. White, 187 Cal. 489 19

Cussen v. Southern Calif. Savings Bank, 133 Cal. 534 60

Dieterle v. Bekin, 143 Cal. 683 60

Dobbie v. Pac. Gas & Elec. Co., 95 Cal. App. 781 58

Hiner v. Olson, 23 Cal. App. (2d) 227 24

Howland v. Oakland Cons. St. Ry. Co., 110 Cal. 513 58

Kadow v. City of Los Angeles, 31 Cal. App. (2d) 324 21

Kinsey v. Pac. Mut., 178 Cal. 153 58

Lemm v. Stillwater Land & Cattle Co., 217 Cal. 474 16

Linnard v. Sonnenschein, 94 Cal. App. 729 22

Moore, Estate of, 180 Cal. 570 24

Ogburn v. Travelers Insurance Co., 207 Cal. 52 17

Tieman v. Red Top Cab Co., 117 Cal. App. 40 25

U-Drive etc. v. System Auto Parks, 28 Cal. App. (2d) 782 60

Vallejo & Northern Ry. Co. v. Reed Orchard Company, 169

Cal. 545 56

Wilson v. Crown Transfer etc. Co., 201 Cal. 701 59

Statutes.

Civil Code, Sec. 1955 15, 60

Code of Civil Procedure, Sec. 1963 (5) 23

Code of Civil Procedure, Sec. 1870, Subd. 9 57

Rules of Civil Procedure for the District Courts of the United

States, Rule 75 4

28 United States Code, Annotated, Sec. 41 (1) 3

28 United States Code, Annotated, Sec. 225, para, (a) 3

28 United States Code, Annotated, Sec. 230 4

Textbooks.
10 California Jurisprudence, Sec. 86, p. 779 24

No. 9779.
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Fanchon & Marco, Inc., a corporation,

Appellant,

vs.

Hagenbeck-Wallace Shows Company, a corporation,

Appellee.

APPELLANT'S OPENING BRIEF.

Statement of Pleadings and Facts Disclosing Basis of

Jurisdiction.

The appellant, Fanchon & Marco, Inc., is a corporation
organized and existing under and by virtue of the laws of
the State of California.

The appellee, Hagenbeck-Wallace Shows Company, is
a corporation organized and existing under and by virtue
of the laws of the State of Indiana.

The appeal is from a judgment in favor of the appellee
in the sum of fifteen thousand six and 07/100 dollars
($15,006.07), general damages and costs rendered upon
a judgment by the Court.

— 2—

The complaint alleges the making and execution of a
written contract dated May 22, 1939, wherein the appellee
leased to appellant specified circus equipment for five
weeks under certain terms and conditions, and wherein the
appellant agreed to pay as rent therefor the sum of two
thousand five hundred dollars ($2,500.00) per week. It is
further alleged in the complaint, that the appellee deliv-
ered said equipment in compliance with the terms of the
contract, in good condition, ready for use, and that appel-
lee has performed all the other covenants in said contract
to be performed by appellee, and that the appellant has
failed and refused to pay the rental of two thousand five
hundred dollars ($2,500.00) a week for the period, and
that the whole amount together with interest thereon is
due and owing from appellant to appellee. [Pr. Tr. pp.
2-14.]

It is further alleged, that on or about May 31, 1939,
the appellant returned all of said circus equipment to the
appellee, and that during the unexpired term of said rental
period, namely, a period of four weeks, the appellee en-
deavored to, and made every effort to, rent said circus
equipment, but was unable to do so. That as a conse-
quence of appellant's alleged breach and return of said
equipment, the appeliee was compelled to feed the animals
to its damage in the amount of one thousand six hundred
dollars ($1,600.00).

The Answer of appellant admits the execution of the
contract, but denies that the appellee has performed all
the conditions and covenants on its part to be performed.

— 3—

That as an affirmative defense, the appellant sets up the
fact that on or about the 31st day of May, 1939, the
appellant returned all of said equipment to the possession
of the appellee, and served the appellee with a Notice of
Rescission. [Pr. Tr. pp. 14-26.] There is also included
in the answer, a counterclaim for appellant's damages in
the amount of $50,000.00.

That the action was commenced in the United States
District Court of the Southern District of California,
Central Division, pursuant to 28 U. S. C. A., Section
41 (1). The statutory provision relied upon to sustain
the jurisdiction of the District Court is 28 U. S. C. A.,
Section 41 (1). The statutory provision relied upon to
give this Honorable Court jurisdiction on appeal to review
a judgment of the District Court is 28 U. S. C. A., Sec-
tion 225, paragraph (a).

The pleadings necessary to sustain the existence of
jurisdiction in the District Court are the Complaint [Pr.
Tr. p. 2], the Answer [Pr. Tr. p. 14], Reply to Counter-
claim [Pr. Tr. p. 26], Amended Counterclaim [Pr. Tr.
p. 28], Reply to Amended Counterclaim. [Pr. Tr. p. 32.]

Judgment was entered in the District Court on Decem-
ber 3rd, 1940. [Pr. Tr. p. 46.] Notice of Appeal was
filed by appellant on the 16th day of January, 1941. [Pr.
Tr. p. 48.] Bond on appeal in the sum of $20,000.00 cov-
ering both judgment and costs was filed by appellant on
January 16th, 1941. [Pr. Tr. p. 49.]

The typewritten transcript of record in the above en-
titled cause was filed and docketed in this Honorable Court

—4—

on the 29th day of March, 1941 [Pr. Tr. p. 285], which
was within the time allowed for the docketing of said
transcript, the time therefor having been extended by the
District Court in compliance with provisions of Rule 73
of Rules of Civil Procedure for the District Courts of the
United States. [Pr. Tr. p. 55.] The typewritten tran-
script of record was prepared pursuant to a Designation
of Record on Appeal and Amended Designation of Record
on Appeal in accordance with Rule 75 of the Rules of
Civil Procedure for the District Courts of the United
States, the Designation having been filed on the 12th day
of March, 1941 [Pr. Tr. p. 52], Amended Designation
having been filed on the 13th day of March 1941. [Pr.
Tr. p. 54.]

Pursuant to Rule 19, subdivision 6, of the Rules of this
Honorable Court, a statement of the parts of the record
necessary for the consideration of the case, and a state-
ment of points relied upon was filed on the 2nd day of
April, 1941. [Pr. Tr. p. 286.]

The transcript of record was filed in this Honorable
Court on the 29th day of March, 1941, and all proceed-
ings having been taken within the time as provided by the
rules of Court, and the provisions of the Federal Code,
28 U. S. C. A., Section 230, this case is now before this
Honorable Court.

— 5—

Statement of Case.

The appellee in this case is a corporation engaged in the
business of conducting and maintaining circuses and leas-
ing circus equipment. For some time prior to May 23,
1939, this circus equipment was stored at appellee's winter
quarters in Baldwin Park, California. [Pr. Tr. p. 66.]

Approximately three or four weeks before the execu-
tion of the contract between the appellee and appellant,
the agent of the appellee, Ralph J. Clawson, solicited the
appellant with the idea of renting to appellant the circus
equipment owned by the appellee; that extended negotia-
tions were had regarding the rental of said equipment
which culminated in the execution of a contract, attached
as "Exhibit A" to appellee's complaint [Pr. Tr. p. 8] and
which was stipulated to be the contract executed by the
parties. [Pr. Tr. p. 36.]

That at the pretrial hearing, the issues in said cause
were limited to the question of whether the equipment was
delivered in accordance with the provisions of the con-
tract, namely, whether the equipment was in good condi-
tion and ready for use when delivered by the appellee to
the appellant at Inglewood, California. The appellant con-
tends that the appellee failed to deliver all of the specified
equipment, and that the equipment delivered was not in
good condition and ready for use as specified in the con-
tract; that after having used said equipment for a period
of one week, appellant found it so completely unsatisfac-
tory that it was impossible for appellant to pursue the

business of putting on and staging a circus. [Pr. Tr.
p. 36.]

That on the 31st day of May, 1939, the appellant re-
turned all of said equipment to the appellee at its winter
quarters at Baldwin Park and thereupon served the appel-
lee with a Notice of Rescission of said contract. [Pr. Tr.
p. 25.]

The appellee introduced evidence attempting to prove
that the equipment as delivered was in compliance with
the terms of the contract, namely, in good condition and
ready for use, but the evidence introduced is so inade-
quate that it fails to establish any fact upon which a find-
ing by the Court can be sustained.

Appellee's complaint alleged on the contract and set
forth two additional causes of action. It was agreed at
the pretrial hearing that the second and third causes of
action were predicated upon the first, and it was ordered
by the Court that the second and third causes of action
be dismissed. The trial, therefore, proceeded on the first
cause of action only.

Appellee in paragraph IV of its complaint [Pr. Tr. p. 3]
made as a part of its case the allegation that after the
return of the equipment to the appellee, the appellee made
every endeavor during the remaining portion of the rental
term to let the property but was unable so to do. No
evidence whatever was offered to sustain this allegation.

Specifications of Error.

I.

The Court erred in finding that there had been a waiver
by the appellant of the terms of the contract which pro-
vided that the equipment when delivered in Inglewood
would be in good condition and ready for use.

II.

The Court erred in concluding that a presumption arose
because the appellant failed to produce certain physical
evidence, to-wit, some rope which was not in appellant's
possession but was in the possession of appellee, and in
making a finding upon such erroneous presumption.

III.

The finding of fact that the property delivered by appel-
lee to appellant at Inglewood was at the time of delivery
in good condition and ready for use, is not supported by
the evidence.

IV.

The Court erred in finding that the appellant company
engaged in the show business was familiar with the circus
business and knew about ropes, and that it must have
known how long the rope would likely continue in use.
[Findings, Pr. Tr. p. 40.]

V.

The Court erred in finding that there was no dry rot
in the rope and that dry rot could not be detected by a
person looking at it, and that the witnesses had no special
knowledge. [Findings, Pr. Tr. p. 43,]

VI.

The Court erred in finding that there was no evidence
that the wagons had been greased or oiled and drawing a
conclusion therefrom that they had not been greased or
oiled, and at the same time finding that the appellant
employed a staff of efficient showmen as heads of the
several departments. [Findings, Pr. Tr. p. 44.]

VII.

The Court erred in concluding that the appellant ac-
cepted the property " without discovering any fault of
any sort or fashion," and then immediately concludes
further that the appellant "assumed to make recondition-
ing for such needed repairs as were apparent."

VIII.

The Court erred in concluding that appellant closed the
circus because threatened with a closed shop by labor
unions.

IX.

The Court erred in admitting the testimony, over ob-
jection of appellant, as follows:

"Q. What did you do when you arrived at Bald-
win Park with relation to examining and making
such repairs as were necessary to the wagons? A.
Well, I believe that first day I hired a mechanic who
was on the Barnes Show, Forbes — I am sure it was
the first day — and another man who handled the
tractors, and I told them to look over the wagons
that we were selecting, one of them to look them

over for the rings, to let them up and down off the
train to see if they were all sound, and, if they
were not, to get them repaired.

Q. Under your direction and supervision? A.
That is so.

Q. Did he report back to you in that connection?
A. Yes.

Q. What did he report to you? A. He reported
to me that the wagons were usable.

Q. And were there any repairs that were made
on those wagons? A. Yes. I told him to make any
necessary repairs on the wagons.

Q. Were they in such condition as used circus
wagons would normally be in, at such a time? A.
Yes.

Mr. Schaefer: I object to that as calling for the
conclusion of the witness.

The Court: I think, after what he has stated, his
conclusion is proper.

Q. By Mr. Combs: And were they, in your
opinion, in good condition and ready for use in the
business of the production of a circus at that time?
I will withdraw that. At the time of May 23rd, when
delivery was made at Inglewood? A. Well, I had
used them and we hauled the show out with them.

Mr. Schaefer: I move to strike that answer as
not responsive, Your Honor.

Q. By Mr. Combs: In your opinion. Just an-
swer the question.

—10—

The Court: Answer the question as propounded.

Q. By Mr. Combs: In your opinion. A. They
were in usable condition, yes." [Pr. Tr. pp. 71-72.]

X.

The Court erred in admitting the testimony, over ob-
jection of appellant, as follows:

"Q. Did anything occur at Santa Ana with rela-
tion to the equipment that was out of the ordinary?
A. Yes. We had a long hill there, and I think the
pole wagon went over the side of the run.

Q. What was the occasion for that? A. I wasn't
there. All I know is the report that it was so.

Q. Who reported it to you? A. The trainmaster
— or Pat Graham came down and told me it was
reported to him by the trainmaster.

Q. Are you able to say whether or not it went
over the side of the run because of some faulty con-
struction of either the wagon or the run ? A. I don't
know.

Q. Have you ever had opportunity to observe a
wagon slip off a run before, in the conduct of a cir-
cus ? A. Yes.

Q. In fact, that is usually an accident that occurs
as a result of wrong turning? A. It could be, if he
didn't handle the pole of the wagon properly coming
across the platform.

—11—

Mr. Schaefer: I move to strike that out, Your
Honor. He wasn't there, and he has given what
might be a reason.

The Court: He is giving his ideas as a man fa-
miliar with this sort of business, and I think it is
proper. The court will only give it such weight as
it ought to have, anyway." [Pr. Tr. p. 88.]

XI.

The Court erred in admitting the testimony, over ob-
jection of appellant, as follows:

"O. Did you go out to Baldwin Park before the
opening day of the circus? A. I did.

Q. Did you examine any of the equipment out
there at that time?" [Pr. Tr. pp. 88-89.]

"Mr. Schaefer: Just a minute. I object to that
unless it is the equipment used by the Great American
Circus.

The Court: It should be limited.

Mr. Combs: It should be. I so qualify my
question.

A. Only to the extent that the various wagons
that were to be used were identified by Mr. Clawson
as 'this' and 'that' and 'this/ and so forth.

Q. By Mr. Combs: Can you state what your
observation of their condition was at that time? A.
My observations of their conditions were that they
were usable.

Q. Were they in good condition, suitable for use
for the production of a circus?

—12—

Mr. Schaefer: I object to that as calling for the
conclusion of the witness, without proper foundation
being laid.

The Court: Let us find out what he knows about
it. Do you know anything more about them? A. I
can only say that they looked to me to be usable."
[Pr. Tr. p. 226, line 16, to p. 227, line 10.]

XII.

The Court erred in admitting the testimony, over ob-
jection of appellant, as follows:

"Q. Did you have occasion to observe the condi-
tion of the flat cars in this circus? A. Very much so.

Q. What was their condition? A. I would say
they was good. I have worked on worse.

Q. By Mr. Combs: What was the condition of
the runs? A. Very good.

Q. What was the condition of the wagons? A.
Good.

Mr. Schaefer: I will object to that and move to
strike the answer on the ground that there is no
foundation laid for the answer to that question.

The Court: The court will consider it, if it has
any value." [Pr. Tr. p. 280, lines 13-27.]

XIII.

The judgment is not supported by the findings in that
there is no finding to sustain the allegation of the com-
plaint that the appellee made an effort to mitigate dam-
ages as alleged in its complaint.

—13—
ARGUMENT.

POINT I.

The Court Erred in Finding That There Had Been a
Waiver by the Appellant of the Terms of the Con-
tract Which Provided That the Equipment When
Delivered in Inglewood Would Be in Good Condi-
tion and Ready for Use.

The Court found that

"When the defendant accepted the property, after
examination and after exposition of the property to
him, without discovering any fault of any sort or
fashion, and assumed to make reconditioning for such
needed repairs as were apparent, and charged it to
the plaintiff's account with the plaintiff's consent, he
waived such reconditioning as is shown to have been
necessary and to have been made,".

The evidence not only does not sustain this finding but
on the contrary it is appellant's contention that there is
no substantial evidence to support this conclusion.

Under the terms of the contract, the appellee was re-
quired at its own expense to deliver all of the leased circus
equipment "in good condition and ready for use, to the
lessee (appellant) at Inglewood, California, by May 23,
1939". [Pr. Tr. p. 9.] This sets forth the obligation of
the appellee, and a determination must be made whether
or not this obligation was fulfilled by the appellee. An
examination of the evidence indicates that the only sub-
stantial proof offered by appellee is that the equipment was
ready for use, but there is no proof of that part of the
covenant which requires that the equipment be in good
condition.

—14—

The appellee could not fulfill its obligation in this con-
nection by merely delivering the equipment ready for use
at Inglewood without having it in good condition for the
period of the contract. This covenant of the contract
must be read in connection with the preceding covenant
which provides that the lease was for five weeks with an
option for renewal for a period which, if exercised, would
have made a total rental period of twelve weeks. Good
condition could only, therefore, mean in such condition
that the appellant could reasonably anticipate the use of
the equipment for the term provided.

As a further preliminary, and aid in construing the
lease contract between the parties, it must be called to the
Court's attention that as the lease was originally pre-
pared the appellee had in mind that the appellant was to
acknowledge that it had examined the property, and that
the appellee was to make no representation as to its con-
dition or fitness for the use thereof intended by the
lessee.

"8. The Lessee has examined the said property
and the Lessor makes no representation as to its- een-
dition of fitness 4e? the «se thereof intended by- the
Lcgscc. (WPD JR)" [pr. Tr. p. 11.]

But the appellant did not agree to such a condition and
accordingly struck the same from the contract. While
paragraph 8 was deleted and became of no effect, yet it is
of tremendous aid in construing the intention of the par-
ties. Under the circumstances we submit that the contract
must be considered in the light that the appellant had not
examined the leased property, and that such representa-
tions as to fitness as would ordinarily be implied for the
use to which the equipment was intended to be used, must
be implied.

—15—

Section 1955 of the California Civil Code, provides as
follows :

"One who lets personal property must deliver it to
the hirer, secure his quiet enjoyment thereof against
all lawful claimants, put it into a condition fit for the
purpose for which he lets it, and repair all deteriora-
tions thereof not occasioned by the fault of the hirer
and not the natural result of its use.,,

Therefore, we reiterate that the appellee was required
to prove that all of the equipment provided for in para-
graph (1) of the contract [Pr. Tr. p. 8] was delivered at
Inglewood in good condition and ready for use. The ap-
pellant had not examined the property and did not release
the appellee from any representation that might have been
made as to condition or fitness, and the appellee knew that
the equipment was to be used for five weeks and perhaps
twelve.

The lower Court's approach to this problem apparently
was that the appellant, because it was in the show busi-
ness, had circus knowledge and an intimate knowledge of
ropes [Pr. Tr. p. 40], and that appellant had sent out
agents to examine the property at Baldwin Park and to
pass on it there.

The Court found as a fact that there had been a waiver
by the appellant of the terms requiring the equipment to
be in good condition and ready for use. [Pr. Tr. p. 45.]

It is evident that the parties considered the matter of
waiver and expressly eliminated such a provision. In or-
der to interpret the contract and ascertain the effect of
the language it is necessary to consider it as a whole.
Furthermore, in determining whether there has been a
waiver of any term of the contract, it is of utmost im-

—16—

portance to have a complete understanding of the facts
which operated upon the minds of the parties in executing
that particular instrument.

It is said in Lemm v. Stillwater Land & Cattle Co., 217
Cal. 474, at 480,

"A court must look at the contract as a whole and
give to each particular clause thereof the modification
or limitation or qualification which it is evident from
the other parts of the contract the parties intended.
(See 1641, Civ. Code; Ogburn v. Travelers Ins. Co.,
207 Cal. 50, 53 (276 Pac. 1004) ; Stockton Sav. &
L. Soc. v. Purvis, 112 Cal. 236, 238 (44 Pac. 561, 53
Am. St. Rep. 210); 6 R. C. L. p. 834 et seq.) In
the interpretation of contracts the duty of the court
is to ascertain the intent of the parties. Although
the language of the contract must govern its inter-
pretation (Civ. Code sees. 1638, 1639), nevertheless
the meaning is to be obtained from the entire con-
tract and not from any one or more isolated portions
thereof. (Hunt v. United Bank & Trust Co., 210
Cal. 108, 115 (291 Pac. 184); Kennedy v. Lee, 147
Cal. 596, 601 (82 Pac. 257) ; Eastman v. Piper, 68
Cal. App. 554 (229 Pac. 1002; 13 C. J. p. 525).)
To assist it in the performance of this duty the court
may look to the circumstances surrounding the par-
ties at the time they contracted (Civ. Code, sec.
1647; Ogburn v. Travelers Ins. Co., supra, at p. 52;
Smith v. Carlston, 205 Cal. 541, 550 (271 Pac.
1091); Henika v. Lange, 55 Cal. App. 336, 339 (203
Pac. 798)), including the object, nature and subject
matter of the agreement (6 R. C. L., pp. 836, 837,
Eastman v. Piper, supra, at p. 565 ; Canal Co. v. Hill,
82 U. S. 94, 100, 101 (21 L. Ed. 64)), and the pre-
liminary negotiations between the parties (6 R. C.
L., p. 839), and thus place itself in the same situa-

—17—

tion in which the parties found themselves at the
time of contracting. (Code Civ. Proc, sec. 1860;
6 R. C. L., p. 849; Jersey Island Dredging Co. v.
Whitney, 149 Cal. 269, 273 (86 Pac. 509, 691);
Blaeholder v. Guthrie, 17 Cal. App. 297, 300 (119
Pac. 524).)"

The intention of the parties can be clearly ascertained
from the fact that the provision providing that the appel-
lant waive his right to demand that the equipment be de-
livered in good condition was stricken from the terms of
the contract. This immediately impels us to the contrary
conclusion in regard to waiver of the expressed terms of
the contract. If there has arisen such a waiver it must
be demonstrated by other facts and circumstances which
give rise to a presumption of more force than the intention
expressed by these actions in revising the terms of the
contract.

In Ogburn v. Travelers Insurance Co., 207 Cal. 52, the
Court in the following language states that it is of
primary importance to ascertain the intentions of the par-
ties and to carry them out by enforcing the terms of a
contract.

"In the interpretation of a written instrument the
primary object is to ascertain and carry out the in-
tention of the parties thereto. (Burnett v. Piercy,
149 Cal. 178, 189 (86 Pac. 603); First Nat. Bank
v. Bowers, 141 Cal. 253, 262 (74 Pac. 856).) This
fundamental rule finds recognition in section 1636
of our Civil Code, wherein it is provided that 'A con-
tract must be so interpreted as to give effect to the
mutual intention of the parties as it existed at the
time of contracting, so far as the same is ascertain-
able and lawful.' As to the hardships, advantages or

—18—

disadvantages which may result from such a con-
struction, the courts have nothing to do. (Gazos
Creek etc. Co. v. Coburn, 8 Cal. App. ISO, 156 (96
Pac. 359).) The intention of the parties is, of course,
to be ascertained from a consideration of the lan-
guage employed by them and the subject matter of
the agreement. (Los Angeles Gas & E. Co. v.
Amalgamated Oil Co., 156 Cal. 776, 779 (106 Pac.
55).) A contract should be construed, however, as
an entirety, the intention being gathered from the
whole instrument, taking it by its four corners.
Every part thereof should be given some effect. (Sec.
1641, Civ. Code.) In other words, 'the sense and
meaning of the parties to any particular instrument
should be collected ex antecedentibus et consequenti-
bus; that is to say, every part of it should be brought
into action, in order to collect from the whole one
uniform and consistent sense, if that may be done/
(Balfour v. Fresno C. & I. Co., 109 Cal. 221, 227
(41 Pac. 876, 878).) Section 1648 of the Civil
Code declares that 'However broad may be the terms
of a contract, it extends only to those things con-
cerning which it appears that the parties intended to
contract/ "

All the evidence given at the trial of the cause, indi-
cates quite the contrary to any presumption of waiver on
behalf of the appellant of the terms of the contract. The
fact that the agents of the appellant were at Baldwin
Park laying out the show, does not indicate that appel-
lant was not entitled to rely upon the express language
of the contract.

—19—

In the case of Craig v. White, 187 Cal. 489, the problem
presented parallels the present case in many respects. It
was held therein that although the presence of an oppor-
tunity on behalf of the plaintiff to investigate the title to
land existed, nevertheless he was not precluded from de-
manding that a good title be conveyed to him. The Court
makes the following observations in respect to the re-
quirements to constitute a waiver :

"We have been referred to no authority which
holds that mere opportunity to investigate title be-
fore entering into a contract of purchase, and the
implied approval of the title offered by subsequently
entering into the contract, constitutes a waiver of the
obligation of the vendor to furnish title on tender of
the final payment. The fact of inspection and ap-
proval by the plaintiff here of the deed offered for
escrow has no significance, because the deed itself
was regular on its face and purported to convey the
title to the land contracted for.

"An examination and acceptance of an imperfect
title precedent to entering upon a contract to pur-
chase, by express agreement or under circumstances
giving substantial advantage to the purchaser, or
operating to the detriment of the vendor, might op-
erate as an estoppel.

"But even an express agreement to buy and pay
for land to which it was known the vendor had no
title whatever would be void for want of considera-
tion.

"Here there is no claim of an express waiver, and
there are no circumstances to sustain an equitable
estoppel of the purchaser.

—20—

"It is entirely clear that both parties contracted
on the belief that the defendant had and could con-
vey title to the land. The plaintiff, although it does
not so appear of record, presumably made some
search or inquiry. The record title appeared to be
in defendant. The plaintiff, by entering upon the
contract to purchase, impliedly, at least, expressed
himself as satisfied that the title was good. We are of
the opinion that this did not preclude him from re-
scinding while the contract was still executory, and
not merged in an executed and delivered deed of con-
veyance, when he discovered that the defendant had
no title whatever and could not make such con-
veyance.

"As is said in Ruling Case Law (27 R. C. L., p.
908), 'To constitute a waiver within the definitions
given, it is essential that there be an existing right,
benefit or advantage; a knowledge, actual or con-
structive, of its existence, and an intention to relin-
quish it. No man can be bound by a waiver of his
rights, unless waiver is distinctly made, with full
knowledge of the rights which he intends to waive;
and the fact that he knows his rights, and intends to
waive them/ And again: Tn the absence of an ex-
press agreement a waiver will not be presumed or im-
plied contrary to the intention of the party whose
rights would be injuriously affected thereby, unless
by his conduct the opposite party has been misled,
to his prejudice, into the honest belief that such
waiver was intended or consented to/ "

—21—

There is no indication throughout the entire testimony
contained in the record, that the appellee was misled in
any way to his prejudice by any belief created that there
was a waiver on behalf of the appellant.

In Kadow v. City of Los Angeles, 31 Cal. App. (2d)
324 at 329, the Court states that there must be such a
showing.

"Appellant Smith's contention, which appears for
the first time on appeal, in substance to the effect that
the failure to file a written claim with him, the offi-
cer, within ninety days after the accident consti-
tuted a waiver, is without merit. It is the general rule
that a party to an action who relies upon a waiver
must specially plead such waiver. (25 Cal. Jur., p.
931.) Moreover, 'In no case will a waiver be presumed
or implied contrary to the intention of the party
whose rights would be injuriously affected thereby,
unless by his conduct the opposite party has been
misled, to his prejudice, into the honest belief that
such waiver was intended or consented to;' also, 'A
waiver is the intentional relinquishment of a known
right with knowledge of the facts.' (Cal. Jur. supra,
pp. 926, 928.) There is no justification for the appli-
cation of the doctrine in the case at bar."

The record is replete with evidence that the appellant
and its agents were protesting the deficiencies in the equip-
ment to the agents of the appellee and reporting de-
ficiencies and demanding that they be repaired. [Pr. Tr.
pp. 164. 165, 166, 172, 174 and 175.]

—22—

In the case of Linnard v. Sonnensckein, 94 Cal. App.
729, it is stated by the Court:

"The 'waiver' defense urged is based upon the
acceptance by plaintiff of various sums on account
of the rent of the premises after the notice changing
the terms of the tenancy and the notice to quit. Ac-
ceptance of rent after a notice changing a tenancy
or after notice to quit does not necessarily operate
to waive the notice. While the unconditional ac-
ceptance by a landlord of moneys as rent, which rent
has accrued after the time the tenant should have
surrendered possession will constitute strong evidence
of the landlord's waiver of the notice to quit, waiver
always rests on intent and is ever a question of fact."

Such language clearly indicates that an unconditional
acceptance might constitue a waiver and is strong evi-
dence thereof, but in face of the constant protestations of
the agents and officers of the appellant it cannot be said
that there was an unconditional acceptance of the equip-
ment. Such evidence is not disputed and stands uncontra-
dicted in the record. A finding contrary to such evidence
in view of the law cannot be sustained. Furthermore,
from a reading of the record it may appear that all of the
deficiencies in the equipment were present and apparent
at the time of the delivery in Inglewood. This is not the
case. Deficiencies set forth in the notice of rescission
became evident day by day during the week's possession
by the appellant. The appellant's decision at Inglewood to
go on was based only on a knowledge of the existing
deficiencies.

—23—

POINT II.

The Court Erred in Concluding That a Presumption
Arose Because the Appellant Failed to Produce
Certain Physical Evidence, Towit, Some Rope
Which Was Not in Appellant's Possession But
Was in the Possession of Appellee, and in Making
a Finding Upon Such Erroneous Presumption.

The finding:

"No part of the broken rope is produced in court
as evidence, nor is its absence explained. There is
testimony [37] that the weakness in the rope was
dry rot, but little weight can be attached to those
statements, because a rope so afflicted could not be
detected by a person merely looking at it, as the testi-
mony shows these witnesses did. They had no spe-
cial knowledge with relation to it. And the witness
who spliced the rope testified in this case, but he
did not say anything about any dry rot or any ap-
pearance at the broken place of the rope of any un-
usual condition. The non-production of that, of
course, would indicate the contrary idea to the dry
rot." [Pr. Tr. p. 43.]

is not supported by the facts or the law.

The Court in drawing the presumption evidently had
in mind California Code of Civil Procedure, Section
1963 (5)

"That evidence wilfully suppressed would be adverse
if produced."

It is evident from the reading of this section, that be-
fore such a presumption can arise, there must be a show-
ing of wilfull suppression of the evidence. All the equip-
ment used by the appellant was returned to the appellee,

—24—

and it remained in its possession. It is, therefore, im-
possible to presume that there was any suppression, wilfull
or otherwise, on the part of the appellant, and that the
means of production of the rope in Court were not within
the powers of the appellant.

In the case of Estate of Moore, 180 Cal. 570, at 585, it
is said:

"The court gave the familiar instruction with re-
spect to the presumption of law that evidence wil-
fully suppressed would be adverse if produced. This
was error because the record fails to disclose any
instance of suppression of evidence or anything that
could be properly construed as such withholding of
facts in defendant's possession. That, under the cir-
cumstances, the error was prejudicial there can be
no doubt, and this is emphasized when we note that
one of the counsel for respondents, in his argument,
sought to apply the rule subsequently announced in
the instruction to the circumstance that no person
named in the will had been called as a witness."

In Hiner v. Olson, 23 Cal. App. (2d) 227 at 234, the
Court quotes 10 Cal. Jur. 779, Section 86, as follows :

"When the evidence tends to prove a material fact
which imposes a liability on a party, and he has it
in his power to produce evidence which, from its very
nature, must overthrow the case made against him if
it is not founded on fact, and he refuses to produce
such evidence, a presumption arises that the evidence,
if produced, would operate to his prejudice, and sup-
port the case of his adversary."

—25—

It is quite evident from the testimony, that the condition
of the rope played a considerable part in the evidence
offered on behalf of appellant to show that the equipment
was in good condition and ready for use. It became a
material issue in the case, sufficient for the Court to make
a specific finding in that regard. The indication of the
Court that its finding was based on a presumption, which
if given to a jury in an instruction would have been
clearly erroneous, is prejudicial to the appellant and is
error sufficient to warrant a reversal of the case.

In Tieman v. Red Top Cab Co., 117 Cal. App. 40, at 46,
the Court states as follows:

"Appellants' failure to offer any evidence on these
issues, although obviously the best advised, requires
that the above evidence 'be estimated not only by
its own intrinsic weight, but also according to the
evidence which it is in the power of one side to pro-
duce and of the other to contradict'. (Code Civ.
Proc, sec. 2061, subd. 6.) 'It is a well-settled rule
that when the evidence tends to prove a material
fact which imposes a liability on a party, and he has
it in his power to produce evidence which from its
very nature must overthrow the case made against
him if it is not founded on fact, and he refuses to
produce such evidence the presumption arises that the
evidence, if produced, would operate to his preju-
dice, and support the case of his adversary.' (Bone
v. Hayes, 154 Cal. 759, 765 (99 Pac. 172, 175);
Alloggi v. Southern Pac. Co., 37 Cal. App. 72 (173
Pac. 1117); Perry v. Paladini, Inc., 89 Cal. App.
275 (264 Pac. 580).)"

—26—

POINT III.

The Finding of Fact That the Property Delivered by
Appellee to Appellant at Inglewood Was at the
Time of Delivery in Good Condition and Ready
for Use, Is Not Supported by the Evidence.

In order to determine whether this finding is supported
by any competent evidence, we deem it advisable to re-
view and sumarize for the Court the testimony of the wit-
nesses touching on the condition of the equipment and its
fitness for use.

Paul Eagles testified that he was a merchant. [Pr. Tr.
p. 63.] In a written statement which was made to coun-
sel for appellant, and returned to Mr. Marco of the appel-
lant corporation in Mr. Eagle's letter of June 28th [Ap-
pellee's Exhibit No. A-2, Pr. Tr. p. 112] the letterhead
of the witness is not reproduced, which would disclose the
business of the witness, but it will be noted from this ex-
hibit that the statement, which appears in the typewritten
reporter's transcript of testimony page 341, shows that the
witness is engaged in the feed and fuel business. This
statement is in no wise repudiated, but the witness states
it does not meet with his approval because it is just a reci-
tation of events that happened on the road, and that it
should be more complete.

To qualify this witness as to his knowledge of the equip-
ment, it is shown by his testimony that he was the sub-
lessee of said equipment from November, 1938, until
around March, 1939. [Pr. Tr. p. 70.] However, when
the equipment was to be taken out by the appellant he hired
a mechanic to look over the equipment, and it was reported
to him that the wagons were useable. [Pr. Tr. p. 72.]
Over objection [Pr. Tr. p. 72] the witness was allowed

—27—

on such foundation to give his opinion regarding the condi-
tion of the wagons.

The witness states that he did not make a personal ex-
amination of the tent rigging, blocks, and falls. [Pr. Tr.
p. 73.]

The witness testified as to the condition of the seats and
chairs, and stated that he had used them on previous oc-
casions, but he did not state that they were in useable
condition as of the time they were delivered to Ingle-
wood. [Pr. Tr. p. 73.]

The knowledge of this witness with respect to the ward-
robe was acquired from a report of a subordinate that
there were certain items missing and that it needed clean-
ing. [Pr. Tr. p. 73.]

The sleeping cars were without blankets, sheets or pil-
low cases, and there were no berth curtains. [Pr. Tr. p.
74. ] The witness did not know whether any of these mate-
rials were furnished except that berth curtains were ob-
tained in San Diego. [Pr. Tr. p. 75.]

In regard to the supplying of elephant howdahs, this
witness testified that he had no discussion regarding them ;
that he does not remember any request having been made
for their delivery. [Pr. Tr. p. 75.]

When this witness was questioned regarding his knowl-
edge of the condition of the equipment prior to leaving
Baldwin Park, he stated that it is true that he selected the
equipment and knew either from his own knowledge or
from the knowledge of subordinates as near as possible as
it was for anyone to know from that extent of the equip-
ment loaded in three days. [Pr. Tr. p. 78.] The rest of
the testimony of this witness concerns the operation of the

—28—

circus subsequent to the time of the delivery of the equip-
ment, and if bearing upon other points will be discussed
under those topics.

On cross-examination, the witness was questioned re-
garding his knowledge of the equipment and in respect to
the wagons he stated that he examined them only in a
general way. [Pr. Tr. p. 101.] He did not examine the
axles or boxings ; that he selected them merely for size and
their ability to carry load. [Pr. Tr. p. 101.]

In respect to the train decks, this witness states that
generally speaking they were in good condition, but repairs
were made both at Inglewood and San Diego. [Pr. Tr.
p. 102.]

In regard to the condition of the rope, this witness said
that it was neither good nor bad, that it would be medium,
and when asked if he remembers making the statement that
the ropes were all in very poor condition [Rep. Tr. p. 343,
line 3, to p. 344, line 2], he could not recall. [Pr. Tr. p.
107.]

This witness further stated on cross-examination that
it is possible that he made the statement ; that he knew the
elephant howdahs never arrived; that the wardrobe was in
bad condition, some entirely unuseable. [Pr. Tr. p. 107.]

In considering Mr. Eagles' testimony these facts must
be kept in mind :

Although working for appellant, he was called by appel-
lee as an adverse witness [Rep. Tr. p. 9, line 10, to p. 50,
line 6] and examined under the broad latitude of cross-
examination. He was not an adverse witness and there
was no showing to justify such examination. It is ap-
parent that the witness was in conference with appellee's

—29—

counsel, and that at the same time he refused to discuss
the matter with appellant's counsel. [Rep. Tr. pp. 50-
55.] Calling the witness as an adverse witness was done
to give his testimony the effect of having been wrested
from the appellant, and reluctantly given, while appellee
would make it appear that the witness was adverse to ap-
pellee. The fact is, Mr. Eagles was a very willing wit-
ness for appellee, no doubt because this was appellant's
only circus venture, while appellee would require feed for
the animals for a long time to come.

Furthermore, the witness had difficulty in stating any-
thing particular that had been discussed with appellee's
counsel and could only generalize. Is it not more reason-
able to assume that his statement made to counsel for ap-
pellant on June 13, 1939 [Rep. Tr. p. 341, line 16] within
two weeks after the circus closed and the equipment was
returned, is more apt to be in line with the facts, than his
testimony offered at the trial, which was November 27,
1940, a few days lacking a year and a half after the close
of the circus. And the witness never did deny the state-
ment ! In returning it to Mr. Marco, he said that it didn't
meet with his approval because "it is just a recitation of
events that happened while the Great American Circus was
on the road and I believe it should be more complete if
it is to be submitted to use in the settlement of a claim".
[Rep. Tr. p. 345, line 11.]

Not an untrue recitation of events, but incomplete.
Counsel that took the statement testified concerning it
[Rep. Tr. p. 340] and while it may be said this testimony
is not entitled to any greater credence than any other
testimony, yet the Court should take into consideration
that counsel was an officer of the Court in which he was
testifying and had been so for many years. Furthermore,

—30—

counsel's testimony is fully corroborated by his secre-
tary. [Rep. Tr. p. 336, line 26.]

The cross-examination of Mr. Eagles with respect to
the statement he made on June 13, 1939, is interesting.
[Rep. Tr. pp. 73-83.] Some of this testimony is repro-
duced :

"Q. These are the same questions I have hereto-
fore asked you, and very briefly I will refer to this,
because it is the only time you and I ever had a con-
ference, and it was in my office on June 13th, 1939,
in my presence and in the presence of my stenog-
rapher. Did you say, 'It took us about an hour
and a half to get the wagon up, and this delayed us
in our show, causing us to miss the afternoon's per-
formance entirely'? A. I didn't, because I wouldn't
have made that statement, because I called the show
in the afternoon at Santa Ana.

Q. Did you state, 'Another reason for our delay
was occasioned by a wagon carrying the big top side
poles to run hot'? A. That was the wagon that
had the side poles on it.

Q. Did you state to me that, 'Another reason for
our delay was occasioned by a wagon carrying the big
top side poles to run hot'? A. That doesn't make
much sense. That isn't good language there, that
I can understand, on that statement you just read.

Q. Do you wish me to read it to you again? A.
If you will, please.

Q. 'Another reason for our delay was occasioned
by a wagon carrying the big top side poles to run
hot'. A. Anyway, the wagon —

Q. Did you make that statement to me at the
time stated? A. I don't believe so.

—31—

Q. Did you say, 'The axles were not in proper
alignment and the wheels, instead of slanting in at
the bottom, were slanting out, causing friction in
the wheel box'? Did you so state to me? A. I
wasn't making statements to you.

Q. Did you make that statement to me in my of-
fice at the time stated? Will you please tell me, if
you can? A. I can't recall.

Q. You don't recall? A. No.

Q. I will ask you if, at the time heretofore stated,
you didn't make the following statement to me: 'In
leaving Santa Ana the rope on the No. 4 broke.
This was due to the poor condition of the rope, caus-
ing one of the main center poles to fall. No one
was injured, fortunately'? A. No. 4 what? That
is not a very complete sentence.

Q. I don't know. A. Neither do I.

Q. I am saying only what you told me. I can't
change it. 'In leaving Santa Ana the rope on the No.
4 broke. This was due to the poor condition of
the rope, causing one of the main center poles to
fall. No one was injured, fortunately.' A. There
is something out of that sentence. It might have
referred to No. 4 pole.

Q. All right. Did a No. 4 pole fall or break or
cause any trouble? A. I don't remember.

Q. You don't remember? A. No.
Q. My question is, did you so state to me? A.
I know I didn't make that statement, just 'No. 4'.
I know I didn't make that.

Q. Did you make the substance of that statement
in a little different form to me?

Mr. Combs: That is objected to as not proper
cross-examination.

—32—

The Court: Yes. I will have to sustain that
objection.

Q. By Mr. Schaefer: Your answer is then, that
you did not make that statement, do I understand?

The Court: I so understood him to say.

Mr. Combs: That is what he said.

Q. By Mr. Schaefer: All right. Did you say
to me at the same time: 'another wagon ran hot on
the way to the train at Santa Ana, causing a fur-
ther delay'? A. It was the same wagon.

Q. Did you make that statement? A. I don't
believe I did. It was the same wagon, going and
coming, that we had trouble with.

Q. I will ask you if you remember stating to
me, on the same occasion, 'As a result, we didn't get
out of Santa Ana until 6:30 a. m., whereas we should
have been out not later than 3 :00 a. m. Accordingly,
we arrived in Pasadena on Memorial Day around
10:00.' Did you so state to me? A. Those are
about the figures, but I can't recall the conversation.

Q. By Mr. Schaefer: Then did you tell me as
follows: 'We greased all the wagons causing us
trouble on the flat cars, but nevertheless on the trip
from the train to the lot in Pasadena, which is a long
haul, we had wagon trouble — wheels smoking and
causing delay.' Did you so state to me? A. I
don't remember, and I don't remember the trouble
with the wagons.

Q. Did you have any difficulty in the erection
of the equipment in Pasadena? A. Yes.

Q. What difficulty did you have? A. The rope
broke three times.

Q. The rope broke three times? A. Yes.

Q. Did the main falls break? A. That is the
main falls.

—33—

Q. Will you explain for the benefit of the court
what are meant by the main falls? A. That is
the rope that pulls the tent up to the top of the
center pole.

The Court: The center pole? A. Yes, the cen-
ter pole.

Q. By Mr. Schaefer: Block and falls is similar
to what is known as block and tackle, isn't it? A.
That is right.

Q. Did any of the performers refuse to perform
that evening? A. Why, they didn't, after an ex-
planation. They started to refuse.

Q. Did any of them come to you and tell you
they wouldn't go out? A. Yes, Walter Guice.

Q. What Walter Guice is that? A. He had the
aerial bar.

Q. The aerial bar? A. Yes.

Q. Did anybody else refuse to go up? A. I
don't think anybody else actually refused. Ernie
White was standing there with him.

Q. Did he refuse to go up? A. I don't believe
he did. He was standing there.

Q. What is his act, Ernie's? A. An upside
down balancing act.

Q. Stood on his head in a trapeze? A. That
is right.

Q. Did these performers finally go up? A. Yes.

Q. Did you have to make some rearrangement
of the equipment? A. No. It had already been
made by George Singleton.

Q. What was it that was done? A. He just
made fast their bars, so that they couldn't fall down
on top of them.

Q. How did he do that? A. I believe with a
chain or rope, or something like that.

—34—

Q. It wasn't the ordinary way that the equip-
ment was ordinarily fastened? A. It has been done
before.

Q. It isn't the ordinary way, though, is it, Mr.
Eagles? A. Not the ordinary way, no.

Q. What was the condition of the rope in Pasa-
dena? Was it good or bad? A. Just like any sec-
ond-hand rope.

Q. Would that be good or bad? A. It would
be medium.

Q. Do you remember telling me on the occasion
mentioned, The ropes were all in very poor condi-
tion'? Did you so state to me? A. I can't recall it.

Q. Do you remember stating to me, 'While we
had some green labor, yet the equipment itself delayed
us tremendously'? Did you so state? A. I don't
recall that part of the conversation.

Q. The elephant howdahs never came out, did
they? A. No, not to my knowledge.

Q. What condition was the wardrobe in? A. I
didn't examine it personally. George King did, the
wardrobe man.

Q. Did you see the wardrobe at all? A. I saw
it in the fall.

Q. How did it look? A. Well, all right. There
were some additions made to it at different times.

Q. Who made the additions? A. I believe Fan-
chon & Marco.

Q. Was some of the wardrobe unusable? A.
We didn't take all the wardrobe. I don't know
whether it was unusable or not.

Q. Did you state to me at the time mentioned, 'I
know that the elephant howdahs never arrived; that
the wardrobe was in bad condition, some entirely un-
usable'? Did you so state? A. I might have. I
probably told you that."

—35—

We submit that the interest of the witness and this
impeachment, renders his testimony of little value, and
at any event, it was highly improper and error to permit
Eagles to be examined as an adverse witness.

The witness, Charles W._Nelson, testified that prior to
the 23rd of May, he had been to Baldwin Park and
observed that some of the wheels appeared as though they
had dried out in the sun. [Pr. Tr. p. 116.] He further
states in response to an inquiry as to whether the equip-
ment was useable or unuseable that he thought it was
useable from observation and his slight knowledge of
what technical details are necessary for the production
of a performance. [Pr. Tr. p. 117.]

It must be observed that the evidence as given by
these witnesses was gained from hearsay, that neither
had made a thorough examination of any part of the
equipment, nor in fact was either hired for this purpose;
that any inspection of the equipment, especially pertain-
ing to the seats and chairs, had been made at previous
times and not within the time before the equipment was
delivered on the 23rd day of May, 1939. The evidence
of Eagles also shows that there was in fact some equip-
ment missing and that the same was not supplied until
subsequent to the date of delivery; that there were in
fact repairs made to the equipment shortly after its de-
livery.

The most important and persuasive argument showing
that the evidence given by Charles W. Nelson is entirely
incompetent, and that a finding of fact based thereon is
entirely unsupported, is that from his own admission he
states that he has a slight knowledge of the technical
details necessary for the production of a show; and that

—36—

with this slight knowledge he concluded the equipment
was useable. This is clearly an expression of opinion
evidence, some of which was admitted over the objection
of the appellant, and it is shown that from the basis
of the witness' opinion, the evidence is highly incompetent
and not worthy of consideration by the trier of facts.

That such equipment was useable is far short of a
compliance with the terms of the contract. It is self-
evident that a piece of equipment may be useable, but
not be in good condition such as was in the contemplation
of the parties when this contract was made.

The contract was made with the purpose in mind that
appellant would operate a circus as a going business for
from five to twelve weeks. Much more was in the minds
of the parties than that the equipment should be useable
— it was expressly provided that it must be in good con-
dition and ready for use in the production of an operating
circus.

The next witness whose evidence we must consider is
that of George Singleton, called on behalf of the appellee.
The witness was questioned regarding the condition of
the wagons and testified that they were in fairly good
shape, suitable for the transportation of a circus; that
they were second-hand equipment. [Pr. Tr. p. 125.]

It was stated by the witness that in Santa Ana there
was trouble with one of the wagons going on to the lot
and that the same wagon gave them trouble the next day.
[Pr. Tr. p. 129.]

It will be noted that the testimony of this witness is in
itself contradictory, for the witness states that the wagons
are in fairly good shape and then in response to a ques-
tion covering the same facts, states that they are in good
condition and ready for use. [Pr. Tr. pp. 132 and 134.]

—37—

In regard to the rest of the equipment, this witness
makes no affirmative statement, except that he does state
[Pr. Tr. p. 134] that he did inspect the tent rigging,
blocks, falls and chairs.

This witness had also been in the employ of appellant.
He had a suit pending against appellant and counsel for
appellee was also his counsel. [Rep. Tr. p. 118.] He
made a statement on June 6, 1939, within one week after
the equipment was returned. [Rep. Tr. p. 332, line 5.]
Mr. William Gamble, of counsel for appellant, testified
concerning the taking of this statement. [Rep. Tr. p.
329.] This was substantiated by the stenographer. [Rep.
Tr. p. 336, lines 8-25.]

The testimony of Ralph J. Clawson states that he did
inspect the 20 wagons that were delivered at Inglewood,
and in response to a question whether they were in good
condition and ready for use, the witness responded that
they were in useable condition and could be used. [Pr.
Tr. p. 143.]

In regard to the train flat decks and runs, the witness
states that there were some places that were bad, but that
they decided they could fix it up at San Diego. [Pr.
Tr. p. 144.]

The witness thinks that the Calliope was useable, but
states that it was dropped at its delivery in Inglewood
and that it did not play the rest of the time. [Pr. Tr. p.
144.] This witness also testified that the wardrobe was
in useable condition and that the sleeping cars were clean
and in good condition, but that the sleeping cars were not
fully equipped. [Pr. Tr. pp. 146-147.]

The witness testifies in regard to the runs and flat cars
that they were in good condition; that the runs were new

—38—

in 1938, and that it was very good equipment. [Pr. Tr.
p. 157.]

On cross-examination this witness was far from posi-
tive in his statements and contradicted himself by quali-
fying his answer to the effect that the equipment was
useable — that it was good enough to use, that it could be
used, but the witness did not commit himself to the effect
that the equipment was in good condition and ready for
use at the time of delivery. [Pr. Tr. p. 158.]

It is submitted that the evidence as presented by this
witness considered as a whole, cannot be the basis for
finding that the equipment was in good condition and
ready for use as contemplated by the terms of the con-
tract. The testimony of this witness fully covers the
conditions under which the circus was operated and such
testimony fully contradicts any evidence that the equip-
ment was in good condition for if it had been such the
method of operation would have not been so fraught with
trouble and disappointment as related throughout the
testimony of all the witnesses.

The witness, J. V. Austin, testified in regard to the
custom of renting railroad coaches to circuses in order
to show that it was not necessary for the appellees to fur-
nish the sheets, pillow cases and blankets. [Pr. Tr. p.
225.]

However, as a basis for this testimony on cross-exami-
nation, it was revealed that this witness had rented circus
sleeping equipment on two previous occasions and it was
upon this experience that he based the custom. [Pr. Tr.
p. 232.]

The witness was asked his opinion regarding the con-
dition of the equipment and was allowed to testify over

—39—

the objection of appellant, that it looked usable. [Pr. Tr.
p. 227.] He based his opinion on an observation made
on one visit to the winter quarters at Baldwin Park prior
to the 23rd day of May. When asked on cross-examina-
tion, the witness stated his knowledge insufficient to give
an opinion. [Pr. Tr. p. 232.]

It is submitted that such evidence was highly incom-
petent and could not be made the basis of any finding of
fact.

In reviewing the evidence of the witnesses, we consider
that while the testimony of Murray Pennock and Patrick
Graham was given on rebuttal, yet it should be considered
here in analyzing the plaintiff's evidence to sustain the
findings.

Murray Pennock testified that he had examined the
equipment six weeks previous [Pr. Tr. p. 260], for the
purpose of using it in fiilming a motion picture. [Rep. Tr.
p. 390.] The witness stated that after making the exami-
nation for the purpose explained, that the wagons were in
comparatively good condition, suitable for use. [Pr. Tr.
p. 262.] That the flat cars were in equally good condi-
tion. [Pr. Tr. p. 262. ] The riggings, tent, drop and falls
he did not examine.

The witness testified that at the opening of the show
in Inglewood, that he thought the equipment was in per-
fectly usable condition, so much as he saw of it, but he
stated that he looked the show over generally. [Pr. Tr.
p. 263.]

On cross-examination this witness testified that he did
not take any of the wheels off of the wagons [Pr. Tr. p.
266] ; that he was not interested whether the wagons had
brakes or not; that his interest in the flat cars was for

—40—

the purpose of making miniatures for motion picture re-
production. [Pr. Tr. p. 266.]

This witness after testifying to the condition of the
cars, on cross-examination acknowledged that he knew
of many defects which existed. [Pr. Tr. p. 267.]

Furthermore, the witness' use of the equipment was
confined to filming in the making of a motion picture.
Of course, the equipment was all right to look at, and
answered the purpose perfectly in giving circus atmos-
phere to a motion picture. But such use is not comparable
to a use in transit.

The witness, Pat Graham, who was porter of the sleep-
ing cars, stated that he cleaned them. [Pr. Tr. p. 277.]
They intended to sleep 267 people and the only equipment
was 67 sheets. [Pr. Tr. p. 279.] As to the cleanliness
of the equipment, the witness stated that they were fairly
clean; that berth curtains were not obtained until they
reached San Diego. [Pr. Tr. p. 279.] Without any
foundation as to the knowledge of the witness concerning
the condition of the wagons and the runs, he was allowed
to give his opinion as to their condition. [Pr. Tr. p. 280.]
Over objection of appellant, the Court refused to strike
out the answers.

This is a summary of all the pertinent evidence in the
transcript regarding the condition of the equipment, and
its arrival in Inglewood, and upon its delivery to the
appellant.

One of the conditions in the contract [Pr. Tr. p. 8] to
be performed on behalf of the appellee was that such
equipment should be in good condition and ready for use.
The appellee so alleged in his complaint, and by this testi-
mony as above summarized, attempted to prove that as an
element necessary for recovery in this cause of action.

—41—

Throughout the testimony, as recorded in this record, it
is shown that the appellant relied upon this representation
of the appellee; that the equipment would be in good con-
dition and ready for use because of the fact that they
had made commitments with sponsors and had become
obligated to produce a circus or become liable in damages
on contracts with the sponsors. [Pr. Tr. p. 250.]

It is quite evident from this testimony that the appellee
has not performed the obligation under its contract. As
shown by the testimony of the witnesses for the appellant
[Pr. Tr. pp. 163, 172], promises were repeatedly made on
behalf of the agents for the appellee that the equipment
would be put in condition and repair so that the appellant
could continue the operation of the circus. It is shown
that upon these representations the appellant continued to
operate the circus for a period of one week and by the
testimony of appellee's own witness, there was delay after
delay occasioned by faulty equipment. The appellant was
forced to miss performances which caused a substantial
reduction in all its receipts and which made the operation
of the circus absolutely impossible.

Appellant relied upon these representations that the cir-
cus equipment would be in good condition and ready for
use, and it was impossible for the appellant to discover
some of the latent conditions until after it had had the
equipment in its possession for a period of time. It was
for that reason, that the appellant continued to operate
the circus for a period of a week before exercising its
right to rescind. A substantial effort to comply with its
provisions of the contract, and an attempt to put the
equipment in good condition so that it would be possible
for it to operate, was made before the appellant returned
the equipment and rescinded the contract.

—42—

POINT IV.

The Court Erred in Finding That the Appellant Com-
pany Engaged in the Show Business Was Familiar
With the Circus Business and Knew About Ropes,
and That It Must Have Known How Long the
Rope Would Likely Continue in Use. [Findings,
Pr. Tr. p. 40.]

It is evident that in this finding the Court misunder-
stood the testimony with respect to the knowledge of the
appellant company and its officers regarding their knowl-
edge as to the operation of the circus business, and also
with the knowledge as to the condition of the circus equip-
ment. There is no testimony on behalf of the witness
Marco Wolff, that he knew anything with respect to the
operations of a circus.

In respect to the testimony of Wayne Dailard, who
was the coordinator or general manager of the circus, his
knowledge is found in the following testimony [Rep. Tr.
pp. 236-237]:

"Q. By Mr. Schaefer: Mr. Daillard, what is
your business or occupation? A. I am in the amuse-
ment business.

Q. How long have you been in that business? A.
20 years.

Q. Were you ever employed by Fanchon & Mar-
co? A. Yes, sir.

Q. When? A. Early in 1939.

—43—

The Court: You say the amusement business.
There are many kinds of amusements. What par-
ticular line? A. Theaters, principally.

The Court: Theaters? A. Theater business, that
is right.

The Court: Show business? A. Yes.

The Court: Circus? A. No.

Q. By Mr. Schaefer: Were you employed by
Fanchon & Marco in connection with the Great
American Circus? A. Yes, sir.

Q. What position did you have with the Great
American Circus? A. I acted as the coordinator or
general manager.

Q. What is a coordinator? A. I was the con-
tact between the actual circus operation and the of-
fice."

Even considering the testimony of Paul Eagles and
George Singleton, who very obviously were prejudiced
against the appellant, there is no showing that either one
of these men was particularly familiar with the condition
of ropes. They were, it is conceded, experienced in the
operation of a circus. It is undoubtedly true that the de-
fendant was engaged in the show business, and had had
a great deal of experience in the production of stage and
theatrical performances; however, this would not endow
them with the knowledge of circus operation. Is it not
logical that for this reason paragraph 8 was deleted from
the contract?

—44—

POINT V.

The Court Erred in Finding That There Was No Dry
Rot in the Rope and That Dry Rot Could Not Be
Detected by a Person Looking at It, and That the
Witnesses Had No Special Knowledge. [Findings,
Pr. Tr. p. 43.]

The Court finds [Pr. Tr. p. 43] :

"There is testimony that the weakness in the rope
was dry rot, but little weight can be attached to
those statements, because a rope so afflicted could
not be detected by a person merely looking at it, as
the testimony shows these witnesses did. They had
no special knowledge with relation to it. And the
witness who spliced the rope testified in this case, but
he did not say anything about any dry rot or any
appearance at the broken place of the rope of any
unusual condition. ... At the time of the break-
ing of the rope the man who was in charge of that
department was an old showman. He was working
in his line of business in making this exhibition. If
that had broken because of dry rot, he would have
discovered it, and he would have reported it to the
defendant, and a part of the rope, or the broken
part, would have been saved as a matter of protec-
tion to the defendant. But this was not done.',

The Court has utterly failed to understand the testi-
mony. Every portion of this finding is entirely without
support.

We shall consider the finding in its several parts, and
the testimony with respect thereto:

First, the Court says, little weight can be attached to
the statements that there was drv rot because this could

-^5—

not be detected by looking at it, and that the witness had
no special knowledge with relation to it. There are three
witnesses that testified to the dry rot: — Walter Guice,
Charles H. Priest, Jr., and George Singleton, the man re-
fered to as the old showman.

Guice's deposition was taken, and he was subjected to
cross-examination. He says that he has been in the show
business for many years, and that he and his family have
an aerial act. It is his business to know about rope be-
cause his and his family's lives depend upon what he
knows about rope. He established himself as an expert.

"Q. What type of act was that that you had? A.
Horizontal bars, aerial act, with four people.

Q. Can you explain the type of equipment that
that act called for? A. Called for pulley blocks and
ropes and steel cable, steel pipe and hickory bars.

Q. Are you familiar with the various kinds of
ropes used in the circus? A. I am.

Q. How long have you been familiar with the
type of ropes used in the circus? A. I acquired that
knowledge through a period of about thirty years."
[Rep. Tr. p. 366.]

"Q. Did you attend to the putting up of your
equipment at Pasadena at night? A. I did.

Q. Did you notice anything about the equipment
that was different? A. No; the only thing is I re-
fused to go up in the main falls of the big top, and
I informed the manager I refused to let anyone of
my people go up in them.

Q. Can you tell us what the main falls are? A.
The main falls holds the big top and the riggings.

Q. What is a fall? A. Pulley block and rope.

Q. That holds the main circus tent? A. That is
right, and the canvas and the rigging; there is four
of them. They had a four-pulley top. one at each
pole.

Q. Is that the rope upon which all the riggings
of the various acts and equipment are supported? A.
Yes, sir, where all the big riggings is hung, and then
they have a ring that they hang on the quarter pole.

Q. And your rigging was supposed to be hung
onto what? A. From the pole ring of the big top.

Q. Why did you refuse to go up that night? A.
The main fall on the center pole on which our rig-
ging was hung was bad and I wouldn't take no
chances on it.

Q. What was wrong with it? A. The ropes
showed dry rot.

Q. That is, the rope? A. Yes, sir.

Q. What was the condition of the rope? A. It
was frayed out and didn't look safe.

Q. And you and the members of your act re-
fused to go up because of the condition of the rope?
A. That is right." [Rep. Tr. pp. 368A-369.]

He, and his family were performers in this circus, and
that he examined the rope, and that it did have dry rot,
and that he refused to go up until his appliances were
first hooked up by chains.

"Q. Did you think that because of the condition
of the rope you wouldn't risk doing your act? A.
Yes, sir.

Q. Because why; were you afraid? A. Afraid
the main fall would break and let us down and it
would cripple somebody.

—47—

Q. What did the manager do, you say? A. Sent
out and got some chain and lashed the bale ring of
the big top io the center pole so in the event the
rope would break it wouldn't come down; it would
stay there.

Q. Do you know from your many years of ex-
perience in the circus business and in the use of
these riggings, whether the bale ring is ordinarily
lashed to the pole?

Mr. Combs: We object to that as irrelevant, in-
competent and immaterial; no proper foundation laid,
and calls for a conclusion of the witness.

A. No, they are never lashed." [Rep. Tr. pp.
369-370.]

"Q. Had you noticed the condition of the main
falls before that time? A. No, sir, until I seen them
break putting up, and then I went up and examined
them when they had my rigging up. I seen them
break when I put the rigging up and I examined
them.

Q. What condition did you find them in when you
examined them? A. Dry rot, indicating they had
been laying around and not used.

Q. Can you explain a little more fully what you
mean by dry rot? A. This rot exists after it is in
a real dry place. It is manila rope, and they gen-
erally put a little tar in it and it drys out, just like
you put grease in the cable, and it lays there and
dries out, and dust gets in there and cuts the fiber
and it eventually gets dry, and when it gets dry it is
just like powder; it falls apart. Manila rope is oiled;
it has some kind of oil in it, and if you aren't using

—48—

it it dries out and causes dry rot. Dust gets in it
and cuts it, and they break up from being pulled over
iron sticks or iron edges, and that cuts the fibers,
and it finally weakens." [Rep. Tr. pp. 37S-379.]

Mr. Priest, produced by the appellant, testified that he
had had twenty years' experience with ropes, and that he
examined the rope after it broke in Pasadena and found
it to have dry rot. [Pr. Tr. p. 246.]

Considering the testimony of George Singleton, the old
showman, who the Court said would have discovered the
dry rot had it existed. It is apparent that from the fol-
lowing testimony [Pr. Tr. pp. 131-132] :

"A. I finally got one wagon, and then they com-
menced to come. Then along, I think when I was
raising the big top, a fall became fouled, and when
I hooked the elephant to it, the rope which fouled in
the block, it cut the rope off. That was the lead line
on the ground, the one that goes through the snatch
block. And so I had to splice this rope.

Q. Did you do that personally? A. Yes. And
proceeded to finish raising the canvas on the big
top." [164]

"The Court: You say, T spliced the rope.' What
was the condition of the rope where it separated?
A. The rope was in usable condition. I bought the
rope myself and had been using it. I had been
handling this property since 1937, and had replaced
new rope from time to time, and rebuilt seats and
poles, and whatever was necessary."

that this witness did not give any answer regarding the
condition of the rope in respect to dry rot. The answer
is evasive in that it is a general statement of opinion and
not a direct answer to the Court's inquiry.

This is the man, the Court will remember, that had
worked for the appellant but who testified on behalf of
the appellee; the man that had a suit pending against
the appellant in which the attorney for the appellee was
also his counsel [Rep. Tr. p. 118]; this is the man that
made a statement a short time after the circus closed and
then repudiated it, and came into the camp of the appellee.
[See Rep. Tr. p. 332 and pp. 120-123.] Therefore, we
must not consider him as appellant's witness, and assume
that he would have testified to a disclosure as to the
condition of the rope. The ropes were all in the pos-
session of the appellee, and none were produced by them.

In this finding, the Court has stated that it is impos-
sible to detect the existence of dry rot by merely looking
at the rope. This finding is entirely unsupported by any
evidence. It is evidently an assumption or presumption
that the Court has indulged in without due consideration
of the evidence. All the testimony with respect to the
condition of dry rot given by witnesses who have had
considerable experience in handling ropes is that upon
an examination they discovered the existence of dry rot.

—50—

POINT VI.

The Court Erred in Finding That There Was No
Evidence That the Wagons Had Been Greased or
Oiled and Drawing a Conclusion Therefrom That
They Had Not Been Greased or Oiled, and at the
Same Time Finding That the Appellant Employed
a Staff of Efficient Showmen as Heads of the
Several Departments. [Findings, Pr. Tr. p. 44.]

If the Court is to assume that there were efficient heads
of the department, it is only fair to conclude that they had
sense enough to grease a wagon the same as they must
have had to feed a horse.

Why should the Court consider as a presumption that
the wagons were not greased, rather than conclude that
the presumption is that they were greased. The testi-
mony of Mr. Priest that the spindles and axles were bent
[Pr. Tr. p. 242] would indicate that the heating was
caused by something far greater than lack of grease.
There is direct testimony, however, that shows that they
were greased; but despite this fact, they continued to give
trouble [Pr. Tr. p. 94] :

"A. The same wagon gave us trouble going back,
although we had greased it.

Q. But you greased it and it did operate all right?
A. No. It gave us trouble. It had another hot
box."

—51—

POINT VII.

The Court Erred in Concluding That the Appellant
Accepted the Property "Without Discovering Any
Fault of Any Sort or Fashion", and Then Immedi-
ately Concludes Further That the Appellant
"Assumed to Make Reconditioning for Such
Needed Repairs as Were Apparent." [Pr. Tr. p.
45.]

The evidence shows conclusively that the appellee never
complied with the contract in delivering one circus train
consisting of seven flat cars, two stock cars, two coaches
and two sleepers, at lessor's expense, in good condition and
ready for use to the lessee at Inglewood, California. The
evidence does show that the cars were not in good condi-
tion or ready for use, and that they could not be used
because of Inter-State Commerce Commission Regulations.

There is in evidence, various agreements entered into
between the appellant and certain sponsors. [Deft's
Exs. 1-13; Pr. Tr. pp. 250-257.] It should, therefore, be
quite apparent that the appellant was legally bound to pro-
vide circus shows for these sponsors at the time and place
named in these several contracts. The circus train was
delivered in an improper and dangerous condition. The
appellant was not thinking about legal rights and techni-
calities, but was trying to perform its contracts with its
sponsors and at the same time carry out its contract with
the appellee. In this endeavor, the appellant seeing that
the appellee had wholly failed in this regard, ordered the

—52—

cars fixed. In the printed transcript, pages 194 to 217,
appears Defendant's Exhibit No. 17, consisting of the
reproduction of bills and repairs made to these cars.

Considering the position of the appellant at the time
the circus equipment was delivered and also taking into
consideration the promises made by the agents of the ap-
pellee, that the equipment would be in good condition and
ready for use, it cannot be contended that there was any
assumption on the part of the appellant to recondition the
equipment. It has been pointed out wherein the equipment
was deficient in the argument under Point III. These
were substantial elements but appellant was faced with a
situation wherein it had to attempt to fulfill its obligations
to its sponsors without sanctioning any of the deficiencies
and relying upon the promise of the appellee that they
would be corrected. The appellant attempted to go for-
ward and produce the circus. The finding that there was
an assumption on the part of the appellant to recondition'
at its own expense the equipment, and thus constituting
a waiver is rebutted completely, we believe, by the argu-
ment in Point II.

—53—
POINT VIII.

The Court Erred in Concluding That Appellant Closed
the Circus Because Threatened With a Closed
Shop by Labor Unions.

If the Court will consider the appellant's exhibits
(1 to 13) [Pr. Tr. pp. 250-257], it will be apparent that
these sponsors' contracts provided for the production of a
circus for the sponsor. Naturally, it was up to the appel-
lant to provide the equipment. Failure of equipment, as
between the sponsor and the appellant, must rest on the
shoulders of the appellant, but not necessarily so as be-
tween the appellant and appellee. Why should it be
thought incredible, that the appellant on discovering that
it could not carry on, because of the poor equipment, at-
tempt to put itself in the best possible position, in making
settlements with its sponsors? There was no effort on the
part of appellant to put something over on the appellee.
The telegrams which were sent to the sponsors were stipu-
lated in evidence at the time of the pretrial hearing. It
is true that Mr. Kramer of the American Federation of
Music wanted a closed shop. Had appellant desired to
avail itself of this type of relief and had it thought that
the equipment could not be made to work, it could easily
have handled Kramer in such a way that he would have
called out the union men at Inglewood, and thus given
the appellant the right to avail itself of the defense to
the sponsors' contracts. But the fairness and honesty of
the appellant is shown in no better way than its actions
at a time when it least thought of legal difficulties, and

—54—

when it could not be deemed to be putting itself in a good
legal position. While the appellant was trying to make
the equipment function, it was also keeping the union
quiet in its demands. For one week, appellant continued
attempting to make things go. The record is replete with
failure of equipment ; wheels burning, rope breaking, poles
falling, missed and delayed performances, and to this the
appellee says — green labor. But green labor didn't break
dry rotted ropes; green labor didn't make wagon wheels
burn; green labor didn't delay performances, because ap-
pellee's expert, Mr. Singleton, testified that he had the tent
up in Inglewood in three hours without difficulty, and
could have put it up in less time. [Rep. Tr. p. 124.]

Appellee is simply taking advantage of a situation in
which the appellant sent out telegrams and availed itself
of a legal defense as against the sponsors after Kramer
had called out his union labor due to a greater degree on
account of the poor conditions. [Pr. Tr. pp. 235-238.]

—55—

POINT IX.

Opinion Evidence.
The Admission of Opinion Testimony Must Be Pre-
ceded by a Proper Foundation Showing That the
Witness Is Qualified as an Expert by Reason of
His Superior Knowledge and It Must Be Shown
That He Has Had an Opporunity for Observation
in Order to Draw His Conclusion Therefrom.
In considering the issue that the evidence set out in
specification of error, Point IX, was erroneously ad-
mitted, the foundation of the evidence must be kept in
mind in order that the substantial character of these er-
rors be apparent.

Conceding for argument that the evidence was of such
a peculiar nature that opinion testimony was proper, nev-
ertheless, such opinion evidence gained by the expert must
be based on some knowledge of the facts by observation.
The distinction being that the expert is allowed to draw
conclusions from his observation. However, we shall at-
tempt to point out that these experts did not have suffi-
cient foundation in observation to permit them to testify.
The excerpt of the testimony above set forth is force-
ful argument in itself that there was not a sufficient
knowledge upon the part of this witness to express an
opinion as to the condition of the wagons at the time in
question.

In the first place the witness states he did not himself
examine, but had a mechanic by the name of Forbes re-
port to him. It is upon this hearsay evidence that the
opinion is based. This objection goes to the force of the
witness' whole testimony, for the Court upon the showing
of his knowledge of the circus business allowed further
opinion testimony as to items of equipment. [Pr. Tr. pp
71-74.]

—56—

It cannot reasonably be said that this witness had the
foundation to come within the language as set forth in
the leading case of Vallejo & Northern Ry. Co. v. Reed
Orchard Company, 169 Cal. 545, 570:

"Witnesses who are skilled in any science, art,
trade or occupation, may not only testify to facts,
but are sometimes permitted to give their opinions
as experts. This is permitted because such witnesses
are supposed, from their experience and study, to
have peculiar knowledge of the subject of inquiry
which jurors generally have not. ... To war-
rant its introduction, the subject of inquiry must be
one relating to some trade, profession, science or
art in which the persons instructed therein, by study
or experience, may be supposed to have more skill
and knowledge than jurors of average intelligence
may be presumed generally to have (Ferguson v.
Hubbel, 97 N. Y. 513 (49 Am. Rep. 544); Young
v. Johnson, 123 N. Y. 233, (25 N. E. 363); Ex-
celsior etc. Co. v. Sweet, 57 N. J. L. 231, (30 Atl.
553).) 'When this experience is of such a nature
that it may be presumed to be within the common
experience of all men of common education, moving
in the ordinary walks of life, there is no room for
the evidence of opinion; it is for the jury to draw
the inference. . . . It is not because a man has
a reputation for superior sagacity and judgment, and
power of reasoning, that his opinion is admissible.
. . . It is because a man's professional pursuit, his
peculiar skill and knowledge in some department of
science, not common to men in general, enable him
to draw an inference, where men of common experi-
ence, after all the facts proved, would be left in
doubt."

—57—
POINT X.

Opinion Evidence.

The admission of the evidence under specification of
error, Point X. was allowed by the statement of the
Court on the theory that the witness was an expert and
familiar with the business engaged in by the appellant.
Such an allowance is undoubtedly made for the admission
of such testimony under the proper circumstances.

Code of Civil Procedure, Sec. 1870, subd. 9.

"The opinion of a witness respecting the identity
or handwriting of a person, when he has knowledge
of the person or handwritng; his opinion on a ques-
tion of science, art, or trade, when he is skilled
therein ;"

Such exception, however, has no application to the pres-
ent situation, and made no observation upon which he
could base an opinion. The witness by his testimony was
not present at the happening of the event referred to, and
the question propounded to him is not confined to the
reason for the accident as described in his testimony but
is merely a conjecture as to what is usually the cause of
such an accident and is not confined to this particular
event. It is purely speculative evidence, whether given by
an expert or whether given by a layman, it is clearly
inadmissible.

—58—
POINTS XI and XII.

Opinion Evidence.

The testimony under Points XI and XII may be con-
sidered together. In both instances the witness testified
that he made a very minute examination of the equipment.
Even though the Court refuses to rule on the objection,
he was allowed to state "that it looked to him to be use-
able". Such testimony does not even come within the
category of an opinion, although it certainly has that
force and effect. The witness testified that it looked to
be useable. It is inconceivable upon what theory such
evidence was admitted. It is true that the trial court is
to determine the qualification of an expert witness and has
a wide discretion in the determination thereof, but it is
submitted that the Court clearly abused its discretion in
permitting such evidence as hereinabove set out in the
record.

Howland v. Oakland Cons. St. Ry. Co., 110 Cal.
513, at 521;

Kinsey v. Pac. Mat., 178 Cal. 153;

Bobbie v. Pac. Gas & Elec. Co., 95 Cal. App. 781.

—59—

POINT XIII.

The Judgment Is Not Supported by the Findings in
That There Is No Finding to Sustain the Allega-
tion of the Complaint That the Appellee Made an
Effort to Mitigate Damages as Alleged in Its
Complaint.

The appellee has not maintained the burden of proof
as to damages. The appellee has alleged in its complaint
[Pr. Tr. p. 2] "that plaintiff made every endeavor dur-
ing the remainder of the term of said contract, to let said
property to others but was unable so to do." There is no
testimony by any witness produced on behalf of the ap-
pellee that any effort was made whatsoever to mitigate
the damages by renting the equipment or attempting to
rent the equipment to others. While it may be the rule
that proof of mitigation of damages rests upon the de-
fendant, in the instant case the appellee has assumed by
this allegation the burden of proving damages sustained.

It is said in Wilson v. Crown Transfer, Etc. Co., 201
Cal. 701, 706:

"Where the plaintiff alleges that the goods stored
were lost by fire due to negligence of the defendant,
then the burden of proving these allegations is upon
the plaintiff, but when the plaintiff's pleadings con-
tain no such allegation, but the defendant, seeking to
justify its refusal to return the goods, sets up their
destruction by fire and alleges that the fire was not
due to its fault or negligence, then the burden is upon
the defendant to prove the allegation of its affirma-
tive defense and show that it was free from negli-
gence as to the cause of the fire."

—60—

It is submitted that these cases are closely analogous to
the instant case and that the reasoning therein is applica-
ble here.

Dieterle v. Bekin, 143 Cal. 683;

C us sen v. Southern Calif. Savings Bank, 133 Cal.
534;

U-Drive, Etc., v. System Auto Parks, 28 Cal. App.
(2d) 782.

There is no showing that any attempt to rent the
equipment was made during the remaining term of the
contract. Dismissing all other points of error urged, the
most that appellee could recover would be for one week,
less the repairs and improvements made by the appellant.

Conclusion.

In conclusion, we submit:

1. The appellant had a right to look to the contract
in determining the legal rights of the parties. This pro-
vided that the appellee would deliver to appellant at In-
glewood the equipment named, in good condition and ready
for use for at least five weeks; that the same was taken
without examination and the appellee was not relieved of
the law of California, as set forth in Section 1955 of
the Civil Code.

2. The equipment was not received in good condition
and ready for use and some of it was missing entirely.

3. The defects as set forth in the notice of rescission
were not fully known until the day the equipment was re-
turned. The defects appeared on each day. The testi-
mony shows that at Inglewood the cars were repaired at

—61—

a cost of over $300.00; the Calliope didn't play, the ele-
phant howdahs were not delivered. At San Diego, addi-
tional repairs had to be made to the flat cars by putting
on new decks. At Santa Ana, the runs caused a wagon
to tip over in leaving the car ; wheels burned ; and wagons
were delayed. In leaving Santa Ana, a pole was dropped,
fortunately no one was hurt. In Pasadena, the matinee
on Memorial Day was missed, although there was a huge
crowd present. The rope broke three times, and the tes-
timony shows there was dry rot. At Pomona there was
a further delay, and the afternoon performance was so
late that its value was lost. These delays were not labor
as is indicated where there were only sixteen men to
erect a tent in Inglewood. This could have been done in
Pasadena if the ropes had held.

4. The appellant had no alternative with such equip-
ment and with the danger of injury to the public, and it
may well be understood that the last thing it would want
to do would be to face the sponsors in their unfulfilled
promise to perform.

5. The rescission did not take place because of labor
trouble. There was no reason to unionize a circus that
could not perform, and the union representative himself
testified that the condition of the equipment and the safety
of his members was a consideration.

6. The rescission on the part of the appellant being
justified, there should have been no judgment against it,
but it should have recovered the damages which it sus-
tained, and which the Court found to be $23,323.93 for
one week. [Pr. Tr. p. 45.]

7. The appellee has failed to offer any evidence on the
allegation contained in paragraph IV, "That plaintiff

—62—

made every endeavor during the remainder of the term of
said contract, to rent said property to others but was un-
able so to do", and having adopted this as part of its case
was bound to offer some proof. If the Court believed
that the other issues had been met by the appellee by a
preponderance of the evidence, yet with proof lacking on
this issue, the appellee's recovery should be mitigated to
one week, less the expenses incurred by the appellant in
repairs to the equipment.

In conclusion, we submit that the judgment should be
reversed and findings be made accordingly.

Respectfully submitted,

Macfarlane, Schaefer, Haun & Mulford,
James H. Arthur and
William Gamble,

By Henry Schaefer; Jr.,

Attorneys for Appellant.

No. 9779.
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Fanchon & Marco, Inc., a corporation,

Appellant,
vs.

Hagenbeck-Wallace Shows Company, a corporation,

Appellee.

APPELLEE'S ANSWERING BRIEF.

Combs & Murphine,
Lee Combs,
Thos. F. Murphine,
John F. Reddy, Jr.,
925 Pacific Southwest Building, Los Angeles,

Attorneys for Appellee.

FILED

JUI 1941

Parker & Baird Company, Law Printers, Los^tjlfri^^ p„ O'S

TOPICAL INDEX.

PAGE

Statement of Pleadings and Facts Disclosing Basis of Jurisdiction 1

Statement of the Case 5

Summary of Argument 9

Point I (In Answer to Appellant's Point III) 11

Where a case is tried before the court the trial judge has the
sole right to believe or reject the testimony of a witness
and the sufficiency of evidence to establish a given fact is
also a question for the trial court 11

Point II (In Answer to Appellant's Points I and VII) 16

A deleted clause in an instrument or other extrinsic evidence
is inadmissible to show intention, waiver or non-waiver, or
other interpretation where the contract is plain, unambiguous
and certain and waiver is a question of fact to be deter-
mined by the trier of the facts 16

Point III (In Answer to Appellant's Point VI) 23

The condition and usability of the wagons as a part of the
equipment was a question for the trial court 23

Point IV (In Answer to Appellant's Points II, IV and V) 24

The submission of weaker evidence when stronger could have
been produced should be viewed with distrust and, in any
event, the trial court is the sole and final judge of the
credibility of witnesses and testimony produced, and the
knowledge of the agent is knowledge of the principal 24

11.

PAGE

Point V (In Answer to Appellant's Point VIII) 32

The court had a right to conclude from the admission of
appellant that one of the reasons for closing the show was
the calling out of a number of the performers by the busi-
ness agent of the American Federation of Actors 32

Point VI (In Answer to Appellant's Points IX, X, XI and XII) 34

The qualifications of expert witnesses and the admission of
opinion evidence is a matter within the discretion of the
trial court, and there can be no abuse of that discretion
where the trial is before the court without a jury and the
court only gives the testimony such weight as it ought to
have 34

Point VII (In Answer to Appellant's Point XIII) 41

There is no need of a finding on an immaterial allegation of
the complaint in relation to mitigation of damages where
appellant submitted no evidence in relation thereto and the
stipulation and agreement of the parties, confirmed by the
court at the pretrial hearing, limited the issues and did not
include "mitigation of damages" as an issue 41

Conclusion 44

lii.

TABLE OF AUTHORITIES CITED.

Cases. page

Andersen v. La Rinconada Country Club, 4 Cal. App. (2d)

197, 40 Pac. (2d) 571 41

Boyd v. Chivers, 134 Cal. App. 566, 25 Pac. (2d) 878 22

Dobbie v. Pacific Gas & Elec. Co., 95 Cal. App. 781, 273 Pac.

630 40

Easom v. General Mortgage Co., 101 Cal. App. 186, 281 Pac.

514 42

Faires v. Title Ins. & Trust Co., 15 Cal. App. (2d) 350, 59

Pac. (2d) 428., 31

Feckenscher v. Gamble, 12 Cal. (2d) 482, 85 Pac. (2d) 885.... 15
First National Bank v. Caldwell, 84 Cal. App. 438, Point 9,

258 Pac. 411 39

Goodwin v. Robinson, 20 Cal. App. (2d) 283, 66 Pac. (2d)

1257 15

Hiner v. Olson, 23 Cal. App. (2d) 227, 72 Pac. (2d) 890, 73

Pac. (2d) 945 29

Howland v. Oakland etc., 110 Cal. 513, 42 Pac. 983 39

Int. Circuit v. United States, 306 U. S. 208, 83 L. Ed. 610, 59

S. Ct. 467 29

Kinsey v. Pacific Mutual Life Ins. Co., 178 Cal. 153, 172 Pac.

1098 39, 40

Kramer v. Associated Almond Growers, 111 Cal. App. 595,

295 Pac. 873 42

Lompoc Produce v. Browne, 41 Cal. App. 607, 183 Pac. 166.... 22

Moore, Estate of, 180 Cal. 570 29

Neher v. Kauffman, 197 Cal. 674, 242 Pac. 713 14

Ringling Bros.-Barnum & Bailey Combined Shows v. Olvera,

119 Fed. (2d) 584 44

Schick v. Equitable Life Assur. Soc, 15 Cal. App. (2d) 28,

59 Pac. (2d) 163 22

Stransky v. Callan, 81 Cal. App, 476, 253 Pac. 960 15

Tieman v. Red Top Cab Co., 117 Cal. App. 40, 3 Pac. (2d) 381 29

Vallejo v. Reed Orchard Co., 169 Cal. 545, 170 Pac. 426 38

Vitagraph, Inc., v. Liberty Theatre Co., 197 Cal. 694, 242 Pac.

709 41

IV.

PAGE

Weissbaum v. Eibeshutz, 211 Cal. 170, 294 Pac. 396 14

Wilson v. Crown Transportation, 201 Cal. 701, 258 Pac. 596 43

Statutes.

California Civil Code, Sec. 1625 17

California Civil Code, Sec. 1956 21

California Civil Code, Sec. 1957 21

California Civil Code, Sec. 2332 31

California Code of Civil Procedure, Sec. 1844 27

California Code of Civil Procedure, Sec. 1847 14

California Code of Civil Procedure, Sec. 1856 17

California Code of Civil Procedure, Sec. 1870, Subdiv. 9 38

California Code of Civil Procedure, Sec. 1963, Subdiv. 5 27, 28

California Code of Civil Procedure, Sec. 1985 28

California Code of Civil Procedure, Sec. 2055 12

California Code of Civil Procedure, Sec. 2061, Subdivs. 6-7-27, 28

Circuit Court Rules, Rule 19, Subdiv. 6 4, 12

Circuit Court Rules, Rule 20, Subdiv. 3 5

Federal Rules of Civil Procedure, Rule 16 44

Federal Rules of Civil Procedure, Rule 34 28

Federal Rules of Civil Procedure, Rule 43b 12

Rules of Civil Procedure for the District Courts of the United

States, Rule 75 4

28 United States Codes Annotated, Sec. 41(1) 3

28 United States Codes Annotated, Sec. 225, Para, a 3

28 United States Codes Annotated, Sec. 230 4

Warehouse Receipt Act, Stats. 1909, Sec. 8, p. 437 43

Textbooks.

70 American Law Reports 1326 29

1 California Jurisprudence 846, Sec. 125, Point 8 31

2 California Jurisprudence 916, Points 1-2 14

10 California Jurisprudence 1160, Point 5 13

22 California Jurisprudence 999 to 1001, Sees. 72-73 18

25 California Jurisprudence, Sec. 8, pp. 932-933 22

10 Ruling Case Law 884 29

27 Ruling Case Law 912 .. 22

No. 9779.
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Fanchon & Marco, Inc., a corporation,

Appellant,
vs.

Hagenbeck-Wallace Shows Company, a corporation,

Appellee.

APPELLEE'S ANSWERING BRIEF.

Statement of Pleadings and Facts Disclosing Basis

of Jurisdiction.

This appeal was taken by Fanchon & Marco, Inc., a
California corporation, from a judgment in favor of
Hagenbeck-Wallace Shows Company, an Indiana corpora-
tion, in the amount of $15,006.07, awarded after a trial by
Court, jury trial having been waived. The complaint in this
matter alleges that plaintiff and defendant are respectively
corporations organized under the laws of the States of
Indiana and California and that the amount involved in
this action exceeds the sum of $3000.00. It alleges the
execution on May 22, 1939, of a contract between the
parties hereto, attached to the complaint as Exhibit "A".
It alleges performance by the plaintiff in conformity with
the terms thereof of the delivery at Inglewood, Cali-

— 2—

fornia, of certain circus property, equipment and animals
covered by the said contract, the acceptance thereof by
defendant under the terms of the contract and the repudia-
tion, after more than one week's use of said equipment,
of the contract and the return of the equipment to the
winter quarters of plaintiff. It alleges that plaintiff suf-
fered damages in the amount of $1600.00, cost of feeding
and caring for animals and equipment for four weeks re-
maining under said contract after repudiation thereof by
defendant, and the failure to pay five items of $2500.00
each, being the five weekly rental payments due under the
contract. In addition thereto, the plaintiff seeks recovery
of interest on the unpaid sums, as provided by law, and
for other items particularly appearing in the complaint, de-
mand for the same and default on the part of defendant
having been alleged. There were two common counts
in the complaint which were dismissed at the pre-trial
hearing. The defendant's answer denies the obligations
as due, alleges that the equipment was not in good condi-
tion and ready for use for circus purposes when deliv-
ered, as required under the contract, and sets up several
affirmative defenses, including fraud and misrepresenta-
tion in connection with the condition of the equipment at
the time the contract was entered into, failure of consid-
eration in connection therewith and impossibility of
adaptation of the equipment delivered by plaintiff to the
use for which defendant contracted for the same. In
addition, a counterclaim on behalf of the defendant was
filed, alleging in substance that the condition of the equip-
ment was not as required by the contract, and that the
defendant suffered damages in the sum of $2500.00 for
repairs in connection with the same, and for $50,000 for
loss of profits as a result of its inability to use the same.

— 3—

A reply to the counter-claim was filed. Later the counter-
claim was amended and a reply to the amended counter-
claim in substance denying the allegations therein con-
tained was filed.

The action was commenced in the United States District
Court, in and for the Southern District of California,
Central Division, and the pleadings were at issue in that
Court. The statutory provision believed to sustain the
jurisdiction of the District Court is 28 U. S. C A., Sec.
41 (1). The statutory provision giving this Honorable
Court jurisdiction on appeal to review a judgment of the
District Court is 28 U. S. C. A., Sec. 225, Par. a.

The pleadings necessary to show the existence of juris-
diction are the complaint [Pr. Tr. pp. 2 to 14], the answer
and counter-claim of defendant Hagenbeck-Wallace
Shows Company [Pr. Tr. pp. 14 to 26], plaintiff's reply
to the counter-claim [Pr. Tr. pp. 26 to 28], defendant's
amended counter-claim [Pr. Tr. pp. 28 to 32], and the
reply to amended counter-claim [Pr. Tr. pp. 32 to 35].

A pre-trial was had and the issues defined in the Order
on pre-trial [Pr. Tr. pp. 35, 36] and the Certificate of pre-
trial hearing under Rule 16 [Pr. Tr. pp. 36 to 39] and
confined the issues to the condition of the equipment when
delivered to the defendant and to losses, if any, recover-
able that were occasioned by the deficiency of the equip-
ment, if any. The judgment was entered in the District
Court on December 3, 1940 [Pr. Tr. p. 46]. Notice of
Appeal was filed by appellant on the 16th day of January,
1941 [Pr. Tr. p. 48]. Bond on appeal in the sum of
$20,000.00, covering both judgment and costs, was filed
by appellant on January 16, 1941 [Pr. Tr. p. 49].

-4—

The typewritten transcript of record was filed and
docketed in this Honorable Court on the 29th day of
March, 1941 [Pr. Tr. p. 285], within the time allowed
for the docketing of said transcript. Thereafter, the
printed transcript of record was prepared pursuant to a
designation of record on appeal and amended designation
of record on appeal, in accordance with Rule 75 of the
Rules of Civil Procedure for the District Courts of the
United States, the designation having been hied on the
12th day of March, 1941 [Pr. Tr. p. 52] and the
amended designation having been filed on the 13th
day of March, 1941 [Pr. Tr. p. 54]. A designation
of parts of records necessary for consideration of this
case pursuant to Rule 19, Subdivision 6, of this Honorable
Court, was filed in conformity with said rule [Pr. Tr. pp.
287 to 291]. An appellee's designation of documents,
records and proceedings to be included in record on ap-
peal and to be included in the printed transcript thereof
was filed in the manner provided by the Rules of Court
in connection with the same by appellee on April 2, 1941
[Pr. Tr. pp. 291 to 294].

The statement of points relied upon by the appellant was
filed at the same time and as a part of the Appellant's
designation of parts of record, on the 2nd day of April,
1941 [Pr. Tr. p. 286].

The transcript of record was filed in this Honorable
Court on the 29th day of March, 1941, and all proceed-
ings have been taken within the time provided by the Rules
of Court and the provisions of 28 U. S. C. A., Sec. 230.

— 5—

Statement of the Case.

There are a number of statements in Appellant's State-
ment of the Case which under Rule 20, Sub. 3 of the Rules
of this court, Appellee controverts. Therefore we are set-
ting out herewith Appellee's Statement of the Case.

The Appellee in this case is an Indiana corporation, and
is engaged in the circus business, and in April and May of
1939 had on hand in its winter quarters at Baldwin Park,
California, a large amount of circus equipment, including
performing animals, elephants, etc., which it was willing
to lease.

The Appellant is also a corporation incorporated in the
State of California, and is engaged in the general show or
public amusement business, and during the months of
April and May, 1939, decided to put on a circus in Cali-
fornia to be known as the Great American Circus, for an
indefinite number of weeks but not less than five weeks,
and from May 2, 1939, to May 19, 1939, Appellant con-
tracted with a number of sponsors in various California
cities to put on a three-ring circus. Nine such contracts
were made prior to May 22, 1939 and four made after
May 22, 1939, up to and including May 29, 1939.

Negotiations were carried on between Ralph Clawson,
the local manager representing Appellee, and Charles W.
Nelson, booking agent for Appellants, Daillard, the ap-
pointed general manager for the Great American Circus
and Marco Wolff, the vice-president of Fanchon & Marco,
the Appellants, in relation to leasing a part of the circus

equipment held by Appellee in its winter quarters at
Baldwin Park, California, sufficient in kind and variety,
including 10 elephants and other animals, to enable the
Appellants to put on a three-ring circus in conformity
with their contracts with the sponsors.

During these negotiations, the Appellants' agents Dail-
lard and Nelson, visited the location of the equipment ac-
companied by Mr. Clawson, and on May 18, 1939, the
Appellants employed George Singleton, of 40 years ex-
perience in the circus business and a former employee of
Appellee, as a "boss canvasman" in charge of the "big
top" and all the equipment, including poles, ropes, chairs,
chains, wires, blocks, falls and tackles, and instructed him
to go to Baldwin Park and start laying out the equipment
needed and to employ the necessary men to assist him
in the matter.

The next day, or on May 19, 1939, Appellants hired
as manager Paul Eagles, a circus man of 25 years' experi-
ence, to take charge of selecting the equipment and to
obtain skilled men to take charge of the various depart-
ments of the circus and to manage the same.

The local manager and agents of both parlies could not
come to an agreement, and the Eastern representatives
of both parties were consulted at New York, who finally
on May 22, 1939, two days before the circus was to open
in Inglewood, entered into the written lease agreement
which is set out in full in the printed transcript. While
the contract was made in New York it was to be per-
formed solely in California.

— 7—

In the meantime the entire equipment had been inspected
and selected and the "big top" had been erected by Single-
ton and his crew at Baldwin Park, and upon the signing
of the agreement was immediately torn down and the
circus transported to Inglewood for the opening show on
May 24, 1939.

The equipment was transferred by the leased circus
train, but the Appellants were informed by the Santa Fe
officials that certain repairs were needed to the train to
conform to certain Interstate Commerce rules. Marco
Wolff, the vice-president of the Appellants, after consulta-
tion and agreement with Clawson, the agent of Appellees,
hired the repairs made by the Santa Fe Railroad and
charged the expense to Appellee. In a like manner certain
other minor repairs were made and minor articles pur-
chased, and the expense charged to Appellee.

The Great American Circus showed in Inglewood May
24, 1939, two performances; San Diego, May 26-27-28,
1939, five performances; Santa Ana, May 29, 1939, one
performance; Pasadena, May 30, 1939, one performance,
and Pomona, May 31, 1939, two performances.

In Pomona the business agent for the American Federa-
tion of Actors called out certain acts on strike and the
circus immediately closed and the equipment was returned
to Baldwin Park, California, and on the 1st day of June,
1939, the Appellants gave notice of rescission, claiming
the equipment leased by them was not in "good condition
and ready for use" and that this fault compelled the Ap-

pellants to close the show. Appellees have claimed the
failure of the show was due to poor management in mak-
ing poor contracts with sponsors from a financial stand-
point, green, inexperienced labor for the circus and not
enough time to break them in, and finally the calling out
on strike of the band and certain special acts and features,
compelling the closing of the show.

The initial payment of $2500.00 due Appellee on de-
livery of the circus equipment at Inglewood was never
paid by Appellant, nor were the four notes of $2500.00
each called for by the agreement ever delivered to Appellee
and on November 10, 1939, Appellee filed this action in
the United States District Court, Southern District of
California, Central Division, for $15,475.14, together with
interest thereon.

After a pre-trial hearing on November 25, 1940, in
which it was stipulated that the issue would be confined
to the condition of the equipment on its delivery, and
after a trial of three days before the Court sitting without
a jury, the Court found for Appellees and gave judgment
to them in the amount of $15,006.07. The defendant
(Appellants) have appealed to this Court and the matter
is now before them, and this is Appellee's Answering
Brief to Appellant's Opening Brief. The matters in-
cluded in this statement are hereafter referred to in the
brief and the page and line of the printed transcript is
set out for each fact herein stated.

Summary of Argument.

POINT 1.
In Answer to Appellants' Point III :

Where a case is tried before the Court, the trial judge
has the sole right to believe or reject the testimony of a
witness, and the sufficiency of evidence to establish a given
fact is also a question for the trial court.

POINT 2.
In Answer to Appellant's Points I and VII :

A deleted clause in an instrument or other extrinsic
evidence, is inadmissible to show intention, waiver or non-
waiver or other interpretation, where the contract is plain,
unambiguous and certain, and waiver is a question of fact
to be determined by the trier of the facts.

POINT 3.
In Answer to Appellant's Point VI:

The condition and usability of the wagons as a part of
the equipment was a question for the trial court.

POINT 4.

In Answer to Appellant's Points II, IV and V:

The submission of weaker evidence when stronger evi-
dence could have been produced, should be viewed with
distrust and in any event the trial court is the sole and
final judge of the credibility of witnesses and testimony
produced, and the knowledge of the agent is knowledge
of the principal.

—10—

POINT 5.
In Answer to Appellant's Point VIII:

The Court had a right to conclude from the admission
of Appellant that one of the reasons for closing the show
was the calling out of a number of performers by the
business agent of the American Federation of Actors.

POINT 6.

In Answer to Appellant's Points IX, X, XI and XII :

The qualifications of expert witnesses and the admission
of opinion evidence is a matter within the discretion of
the trial court, and there can be no abuse of that discre-
tion where the trial is before the Court without a jury
and the Court only gives the testimony such weight as it
ought to have.

POINT 7.

In Answer to Appellant's Point XIII:

There is no need of a finding on an immaterial allega-
tion of the complaint in relation to mitigation of damages,
where Appellant submitted no evidence in relation thereto
and the stipulation and agreement of the parties confirmed
by the Court at the pre-trial hearing limited the issues and
did not include "mitigation of damages" as an issue.

—11—

POINT I.

In Answer to Appellant's Point III.

Where a Case Is Tried Before the Court the Trial
Judge Has the Sole Right to Believe or Reject
the Testimony of a Witness and the Sufficiency
of Evidence to Establish a Given Fact Is Also a
Question for the Trial Court.

In the interest of continuity of thought and as a logical
sequence in argument we are answering Appellant's Point
III first, because we believe this to be the gist of Appel-
lant's entire argument. Obviously if the "circus equip-
ment" listed by Appellant was as the trial court found,

"all of the property that was delivered and accepted
at Inglewood was in good usable condition" [Pr.
Tr. p. 40, lines 28-29],

there is nothing left of Appellant's argument, for all of
Appellant's other points are corrollaries to his Point III.

In justification for Appellant's contention that this
finding by the trial court is not justified by the evidence,
Appellant reviews the testimony of witnesses Eagles,
Singleton, Clawson, Austin, Pennock and Graham, and
attempts to discredit the testimony of Eagles and Single-
ton, respectively, the manager and boss canvasman of the
Great American Circus and employees of Appellant, and
the agents who, with others, inspected, selected and as-
sembled the equipment at Appellant's winter quarters at
Baldwin Park prior to the date of the lease agreement.
Appellant was not only given an opportunity to inspect,
but did in fact, by his authorized agents, inspect and select
every piece of the equipment out of the great mass of
like equipment belonging to Appellee.

\

—12—

Appellant's criticism of witnesses Eagles and Singleton,
and reference to their testimony, is in great part taken
from the reporter's transcript and not a part of the
printed transcript. (App. Op. Br. pp. 28 to 37.)

We understand that the rules of practice of the Circuit
Court of Appeals, Ninth Circuit, to be

That the Circuit Court will not consider parts of
the record not printed.
Rule 19, Subdiv. 6,

and that the Court will not consider the parts of the
reporter's transcript cited by Appellant. (We therefore
object to consideration of any part of the reporter's
transcript.) We shall therefore omit further reference
to said portions of Appellant's Opening Brief. Neither
shall we consider Appellant's undignified attempt to dis-
credit the witness Eagles by his argument (Op. Br. p. 29)
based on matters not in any record, to-wit, that because
said witness was a merchant and in the feed business he
should not be believed because he wanted to sell feed for
the Appellee's circus animals.

Appellant further charges error (Op. Br. p. 35, lines
1 to 4) because the witness Eagles was examined as an
adverse witness. We submit that Appellee had every
right, the witness being Appellant's manager, to be exam-
ined as an adverse witness under the provisions of Section
2055, C. C. P., or Rules of Civil Procedure 43b. No
objection to Appellee's request to so examine the witness
Eagles was ever made by Appellant, nor did the Court
rule on said request. [Pr. Tr. p. 63, line 12.] Nor was
the witness asked any question that could not have been
asked on direct examination. [Pr. Tr. pp. 63 to 101.]
Nor did Appellant ever object to any question asked Mr.

—13—

Eagles, except a question calling for an opinion, when
the trial court, in answer to the objections, said:

"The Court: He is giving his ideas as a man
familiar with this sort of business and I think it is
proper. The Court will only give it such weight as
it ought to have anyway." [Pr. Tr. p. 89, lines
6 to 9.]

The appellant made a weak attempt to impeach the
testimony of Eagles and Singleton (not contained in the
printed record, but cited from reporter's transcript on
pages 30, 31, 32, 33 , 34 and 37 of Appellant's Opening
Brief). Our only answer to this lien of argument is that
the trial court heard these witnesses, observed their de-
meanor on the stand on both direct and cross-examination,
and evidently believed them.

In addition, if the testimony of Eagles and Singleton
were eliminated, there are still a great number of corrobo-
rative witnesses whose testimony is sufficient to support
the judgment of the trial court.

The propositions of law contained in our heading to
this Point I we believe are so fundamental that it is
unnecessary to cite more than a few of a long line of
California decisions to sustain them.

"Under the Code of Civil Procedure the jury, or
trial judge sitting in place of a jury, is the exclusive
judge of the credibility of a witness."

10 Cal. Jur. 1160, Point 5.

"Witness presumed to speak the truth. A witness
is presumed to speak the truth. This presumption,
however, may be repelled by the manner in which
he testifies, by the character of his testimony, or by

—14—

evidence affecting his character for truth, honesty,
or integrity, or his motives, or by contradictory evi-
dence; and the jury are the exclusive judges of his
credibility."

C. C. P., Sec. 1847.

"It is the duty of a reviewing court upon appeal
to construe the evidence so as to support the judg-
ment; to accept as true that evidence which tends
to sustain the findings and judgment (unless it is
inherently incredible) and to reject as untrue the
evidence which conflicts therewith. Substantially all
of the material facts testified to in behalf of defend-
ants in support of their claim for equitable relief
were either directly contradicted by the testimony
of the plaintiff himself or were inferentially contra-
dicted by the testimony of other witnesses produced
by him. The trial court was the exclusive judge of
the credibility of these witnesses. "

Neher v. Kauffman, 197 Cal. 674, 242 Pac. 713.

"The amount of credit to be given to the positive
testimony of a witness is solely a question for the
trial tribunal, except perhaps where the testimony
in the light of the undisputed facts is inherently so
improbable and impossible of belief as to in effect
constitute no evidence at all."

2 Cal Jur. 916, Points 1-2.

"The question of the weight of impeaching evi-
dence was one that was within the province of the
trial court."

Weissbaum v. Eibeshuts, 211 Cal. 170 at 174, 294
Pac. 396.

— 15—

"The question of the credibility of the witness
whose testimony given during the trial of this action
was sought to be impeached in the manner described
was one that was confided exclusively to the deter-
mination of the trier of facts."

Goodwin v. Robinson, 20 Cal. App. (2d) 283 at
289, 66 Pac. (2d) 1257.

"Upon appeal, appellants challenge the sufficiency
of the evidence to support the finding of the trial
court to the effect that the statements made by de-
fendants to plaintiff were false, and known by the
defendants to be false, and insist that the evidence
shows that such statements were true. We cannot
agree with this contention. Having in mind the
general rule that all intendments are in favor of the
judgment and that this court must accept as true
all evidence tending to establish the correctness of
the findings as made."

Feckenscher v. Gamble, 12 Cal. (2d) 482 at 492,
85 Pac. (2d) 885.

"It is only in cases where there is no evidence to
sustain a finding, or where it can be said, as a matter
of law, that the evidence is insufficient to sustain it,
that this court has jurisdiction to consider the evi-
dence. It is the exclusive province of the trial court
to determine the credibility of the witnesses, and
from the conflicting evidence determine the disputed
fact. Those principles have been so often reiterated
that they have become trite."

Stransky v. Callan, 81 Cal. App. 476 at 487, 253
Pac. 960.

—16-
POINT II.

In Answer to Appellant's Points I and VII.

A Deleted Clause in an Instrument or Other Extrinsic
Evidence Is Inadmissible to Show Intention,
Waiver or Non-Waiver, or Other Interpretation
Where the Contract Is Plain, Unambiguous and
Certain and Waiver Is a Question of Fact To Be
Determined by the Trier of the Facts.

Appellant's Points I and VII are so closely related that,
in order to avoid repetition, we shall consider them to-
gether under this one heading.

It makes little difference whether Appellant under the
pleadings had the burden of proof on the question of
whether the leased equipment when delivered at Ingle-
wood was in poor condition and not ready for use, or
whether the Appellee should have the burden of proving
said property was in good condition and ready for use,
for, under the stipulation and order of the Court, the issue
was limited to the condition of the equipment when de-
livered to the defendant [Pr. Tr. p. 39, line 78], and the
trial court found, after all evidence had been submitted
by both Appellant and Appellee, that

"all of the property that was delivered and accepted
at Inglewood was in good useable condition." [Pr.
Tr. p. 40, lines 28-29.]

The agreement of lease between the parties made
May 22, 1939, is set out in full [Pr. Tr. pp. 8 to 12], and
calls for delivery of the itemized equipment stored and
quartered at Baldwin Park, California, to Inglewood on
May 23, 1939, in good condition and ready for use.

—17—

We submit this contract is plain, unambiguous and cer-
tain, and we can see no reason for the introduction of
any extrinsic evidence to explain its terms or to show
lack of knowledge of its subject-matter on the part of
Appellant.

C C, Sec. 1625;
C. C. P., Sec. 1856.

Appellant is laboring hard to make capital out of a
deleted clause in this instrument, to the effect that Appel-
lant had no knowledge of the condition of the equipment,
when the facts are shown, without contradiction, the
Appellant's agents had already at the time of the agree-
ment, inspected, selected and set up the equipment at
Baldwin Park. Eagles, the manager, and Daillard, the
coordinator, had started on this work as early as May
19, 1939. [Pr. Tr. pp. 66-67.] Singleton, the "boss
canvasman," was already there at that time getting out
the paraphernalia, having started such work on the 18th
of May, 1939. [Pr. Tr. p. 121, lines 7 to 13.] Nelson,
an associate of Fanchon & Marco and manager of the
Fair Booking Department and in charge of all arrange-
ments prior to the agreement, together with Daillard,
had examined the equipment six or eight weeks before
the show opened. [Pr. Tr. p. 116, lines 20-31.] Single-
ton, the "boss canvasman" in charge of selecting the equip-
ment, had assembled same and put the "big top" up at
Baldwin Park prior to the signing of the agreement [Pr.
Tr. p. 125, lines 1 to20], in the presence of Daillard and
Marco Wolf! himself, and it was well known to all that
the equipment selected was used, or "second-hand, " equip-
ment. [Pr. Tr. p. 125, lines 18 to 30.]

—18—

All this argument by Appellant about extrinsic evidence
being used in the interpretation of the contract or to show
non-waiver and all his cases cited to show that Appellant
did not know the condition of the equipment is just a
waste of time, for the fact is Appellant did know of the
condition of the equipment and the trial court so found.
[Pr. Tr. p. 41, lines 16-13.]

The only waiver spoken of by the Court was in relation
to certain needed minor repairs, especially to the circus
train, and where the cost of such repairs in the amount
of $332.22 were charged to Appellee and the charges
accepted at the request of Appellant. This particular
waiver is fully covered later under this point.

It will be remembered that the equipment in question
was well known to all parties prior to the signing of
the agreement to be "second-hand," or used equipment,
and the express warranty of "good condition" and "ready
for use" should be interpreted with the fact in mind that
the equipment was second-hand and was to be used in
the circus business. Then "good condition" and "ready
for use" would be a warranty that the equipment was
reasonably adapted to the purposes for which it was
leased.

22 CaL Jur. 999 to 1001, Sees. 72-73.

In this connection we again call the Court's attention
that out of the many hundred of articles of equipment
leased by Appellant but an infinitesimal number were
claimed by Appellant to be unfit for its purpose, and all
these were repaired and made fit at Appellee's expense.

The conclusion of the Court [Pr. Tr. p. 45, lines 13
to 21] that Appellant waived any flaws in the equipment

—19—

that was reconditioned by them and the cost of which
was charged to plaintiff (Appellee) is fully justified under
the facts and the law of California.

Appellant confines his objection to the equipment leased
under his Point VII to the circus train, consisting of
seven flat cars, two stock cars, two coaches and two
sleepers, and states they could not be used under Inter-
state Commerce regulations.

R. V. Kettring, general car foreman for the Santa Fe
Railroad, called as a witness for the defendants (Appel-
lants), testified as follows:

"Q. By Mr. Schaefer: What condition did you
find the cars in? A. We found the cars at Baldwin
Park in what we would term, in a railroad term, as
in fair condition, needing repairs to the safety ap-
pliances, air brakes, and the running gear of the
cars, to make them safe to move.

Q. Will you state what repairs were made and
give the car numbers, if you can, and state why they
were made?

The Court: We don't need that. What other
defects, if any, did you find in the cars? A. Well,
I found several little defects that was in violation
of the Interstate Commerce rules, if we would oper-
ate the cars over our lines, such as old air lines,
wheels with worn flanges. And we had one coach
that was — on request of the parties operating the
show, they asked us to make repairs — it had a defect
in violation of the Interstate Commerce rules, and
these repairs were all made to the cars on our repair
tracks, prior to their departure for San Diego. The
cars were brought back from Inglewood to our repair
tracks, and repairs were made.

0. By Mr. Schaefer: Mr. Kettring, will you
look through these bills as quickly as you can and

—20—

tell me if they are the original bills that came from
the Santa Fe to Fanchon & Marco? A. Yes, sir,
they are. They are the original bills." [Pr. Tr. p.
191, line 19, to p. 192, line 18.]

Marco Wolff, the Marco of Fanchon & Marco, the
Appellant herein, testified concerning the repairs to the
train and to the conversation with Clawson, the agent
of Appellant, as follows:

"A. Yes. Clawson told me that he would get the
calliope fixed right away, and that the additional
cross-pieces for the seats would come out, and the
elephant howdahs were not there, and he said he
would get us the elephant howdahs right away. He
said he didn't have any money and he couldn't fix
up the railroad cars, that his credit wasn't good
for that, and he asked us to advance the money for
that.

The Court: Asked you? A. Yes. And he sug-
gested that we could deduct from our first payment
any advances that he might have to make." [Pr.
Tr. p. 164, line 21, to p. 165, line 2.]

The bill for these repairs amounted to $332.22. [Pr.
Tr. p. 193, lines 1 to 10.] It was then paid by Appellant
and charged to Appellee.

The trial court found that:

"This property had been used in the show business,
some of it for a number of years. The ropes had
been used for one or two years, perhaps two years.
The defendant is familiar with the show business and
had been in such business for some time. He knew
about the ropes, and must have known how long
those ropes would likely continue in use. The de-
fendant had in its employ a practical staff of efficient

—21—

showmen, who had been engaged in the show busi-
ness, some for many years." [Pr. Tr. p. 40, lines
11 to 21.]

And, continuing, the Court further found:

"All of the property that was delivered and ac-
cepted at Inglewood was in good, usable condition.
Some of it was in need of some repairs, which the
defendant had made and charged to the plaintiff's
account, to be deducted from the first payment due
the plaintiff. The railroad cars needed repairs to
bring them within the Interstate Commerce require-
ments. These repairs were made to the cars and,
after reconditioning, the cars were delivered at Ingle-
wood." [Pr. Tr. p. 40, line 29, to p. 41, line 6.]

Appellant meticulously followed the statutes of Cali-
fornia in relation to hiring personal property, which read
as follows:

"A hirer of personal property must bear all such
expenses concerning it as might naturally be fore-
seen to attend it during its use by him. All other
expenses must be borne by the letter."

Civil Code, Sec. 1956.

"If a letter fails to fulfill his obligations, as pre-
scribed by section nineteen hundred and fifty-five,
the hirer, after giving him notice to do so, if such
notice can conveniently be given, may expend any
reasonable amount necessary to make good the letter's
default, and may recover such amount from him."

Civil Code, Sec. 1957.

—22—

Having made these repairs, and Appellee having agreed
to pay for same, or having, in the language of the Court:

"assumed to make reconditioning for such needed
repairs as were apparent, and charged it to the plain-
tiff's account with the plaintiff's consent, he waived
such reconditioning as is shown to have been neces-
sary and to have been made." [Pr. Tr. p. 45, lines
17 to 21.]

Moreover, waiver is a question of fact and is to be
determined by the Court or jury, except when but one
inference can be drawn from the facts.

25 Cal. Jur., Sec. 8, pp. 932-933 ;

27 R. C. L. 912;

Boyd v. Chivers, 134 Cal. App. 566, 25 Pac. (2d)
878.

"Appellant also contends that the alleged waiver
by defendant should have been submitted to the jury
as a question of fact, and that the directed verdict
was, therefore, improper. While waiver is a mixed
question of law and fact, when, however, but one
inference can be drawn from the facts it is not error
for the court to charge the jury that these facts
constitute waiver."

Lompoc Produce v. Browne, 41 Cal. App. 607 at
613, 183 Pac. 166.

"Furthermore, the finding of the court that there
was no waiver is a finding on a question of fact,
proof of which rested upon appellant. (Citing cases.)
In view of the record in this case we must accept
that fact to be true."

Schick v. Equitable Life Assur. Soc, 15 Cal. App.
(2d) 28 at 35, 59 Pac. (2d) 163.

—23—
POINT III.

In Answer to Appellant's Point VI.

The Condition and Usability of the Wagons as a Part
of the Equipment Was a Question for the Trial
Court.

The Appellant, under his Point VI, complains of the
Court's findings of the condition of the wagons. The
evidence showed, concerning the wagons, that after they
had been delivered at Inglewood they had been driven
several miles in San Diego [Pr. Tr. p. 128, lines 22-23],
that they had been hauled out of loose sand, where they
had sunk to the wagonbed, by 60 and 80 H.P. cater-
pillars [Pr. Tr. p. 127, line 115], and then, the next day,
on the long haul at Santa Ana, when the wagons were
loaded beyond their normal capacity and were hauled
by gas motor-powered trucks at great speed [Pr. Tr. p.
156, lines 1-26], the spindle on one of the hubs became
heated (one hub out of 104 or one wagon out of 26)
and there was no evidence that the wagons during this
time were greased until after the show at Santa Ana.
We submit that any reasonable mind, after hearing this
evidence, would conclude that the wagons, for second-
hand equipment, were, when delivered at Inglewood, in
a good usable condition.

—24—

POINT IV.

In Answer to Appellant's Points II, IV and V.

The Submission of Weaker Evidence When Stronger
Could Have Been Produced Should Be Viewed
With Distrust and, in Any Event, the Trial Court
Is the Sole and Final Judge of the Credibility of
Witnesses and Testimony Produced, and the
Knowledge of the Agent Is Knowledge of the
Principal.

Appellant's Points II, IV and V are in relation to the
condition and usability of one item of the equipment,
to-wit, the ''rope" used to lift the "big top" or main tent
to its place. The finding of the Court that

"all of the property that was delivered and accepted
at Inglewood was in good usable condition" [Pr.
Tr. p. 40, lines 28-29],

was discussed under Appellant's Point III of his Opening
Brief and Appellee's Point I of this Answering Brief,
and the arguments made by Appellee therein apply equally
to these points relating to the condition of the "rope,"
as said "rope" is but a minutely small fractional part of
"all of the equipment."

Appellant assumes, under his Point II, that the trial
court had in mind a wilful suppression of evidence by
Appellant. No intimation was ever made by the Court,
counsel for Appellee, or anyone else that Appellant wil-
fully suppressed any evidence. Conjecture of what the
Court had in mind is neither useful nor of any force
or effect. The language of the Court is sufficient to
express the Court's intention, and we submit the finding
that

"all of the property was in good condition"

—25—

includes the rope and such finding is amply justified by
the testimony of the witness Singleton alone. He had
been a "boss canvasman,' for 40 years; he bought this
particular piece of rope in the first instance; he inspected
and selected it as agent of the Appellant; he saw it
become fouled in the "blocks" and break when pulled on
by an elephant, and he spliced the rope after the break
and testified, in answer to a question by the Court, that
the rope was in usable condition. We set out the pertinent
part of Singleton's testimony, taken from the printed
transcript, as follows:

"Q. When you went out to Baldwin Park when
Mr. Nelson first employed you, what did you do out
there? A. I proceeded to get the wagons out and
get material out, etc., chairs, poles, rigging, canvas;
I proceeded to get the show together, to load it in
wagons to go to Inglewood. Then I had an order
to put the show up in winter quarters.

Q. Let me ask you about putting it up in winter
quarters. Do you mean that you set it all up and
tested it and tried it out? A. Do you know exactly
how much wagon space it would take to load —

Q. Did you lay out the falls? A. I put the big
top up. It was all up in the air, and they came out
and stopped me and had me tear it down and load it
to go to Inglewood.

Q. When did you put it up? A. I think it was
Friday, finished it Friday night, some time after
dark.

Q. That was the same equipment you loaded to
go to Inglewood? A. Yes.

Q. And the same equipment the Great American
Circus used? A. Yes,

—26—

Q. And it was all up there, and you looked at it
in the air, set up, before you left Baldwin Park?
A. Yes, sir.

Q. Did anyone else look at it with you? A.
Why, Mr. Clawson went over some of this stuff,
and Mr. Daillard was around there, and Mr. Marco
was all around, looking at the wagons, but I per-
sonally supervised the sorting and loading of all the
stuff myself." [Pr. Tr. pp. 124-125.] ^

"The Court: You say, 'I spliced the rope.' What
was the condition of the rope where it separated?
A. The rope was in usable condition. I bought the
rope myself and had been using it. I had been
handling this property since 1937, and had replaced
new rope from time to time, and rebuilt seats and
poles, and whatever was necessary.

The Court: Well, you have answered the ques-
tion." [Pr. Tr. pp. 131-132.]

and the testimony of the witness Clawson as follows :

"Q. In Pasadena did you have occasion to ob-
serve the working of the main fall there? A. I
noticed they got the line fouled once or twice there.

Q. There were elephants pulling that line? A.
They pulled the cable. The cable goes through the
block, and sometimes the cable will foul.

Q. Has an elephant sufficient strength or power
to pull a rope like that in two? A. An elephant
don't know his strength when he starts to pull.

Q. You believe they could pull the main fall in
two, though? A. Yes, I believe he could, very
easily.

The Court: You say an elephant is the motive
power? A. That pulls the fall up, Your Honor?

—27—

The Court: And the rope got fouled? A. It
got fouled in a block.

The Court: Where did it tear, between the ele-
phant and where? A. It broke once right on the
No. 1 bail ring, and going through the block there
it got fouled.

The Court: And broke right at the block? A.
I think so. It is pretty hard to tell, but that is the
way I think. And they tie that right onto the bail
ring." [Pr. Tr. pp. 154-155.]

That the Court was amply justified in his finding by
the testimony of the witness Singleton alone is shown by
section 1844, C. C. P., which reads as follows:

"The direct evidence of one witness who is entitled
to full credit is sufficient for proof of any fact except
perjury and treason."

C. C. P., Sec. 1844.

The Court said in his finding as follows:

"No part of the broken rope is produced in court
as evidence, nor is its absence explained." [Pr. Tr.
p. 43, lines 14-15.]

The Appellant concludes from this language that the
Court had in mind Sec. 1963, Subdiv. 5, C. C. P. As be-
fore pointed out, this conclusion is in no way sustained
by any remark of the Court or anyone else. However,
the Court could have very properly considered in relation
thereto, Sec. 2061, Subdivs. 6-7, C. C. P., which read as
follows :

"6. That evidence is to be estimated not only
by its own intrinsic weight, but also according to the
evidence which it is in the power of one side to pro-
duce and of the other to contradict; and, therefore,

—28—

"7. That if weaker and less satisfactory evidence
is offered, when it appears that stronger and more
satisfactory was within the power of the party, the
evidence offered should be viewed with distrust."

Sec. 2061, Subdivs. 6-7, C. C. P.

Or Section 1963, Subdivision 6, C. C. P., in relation to
disputable presumption, which reads as follows:

"6. That higher evidence would be adverse from
inferior being produced."
Sec. 1963, Subdiv. 6, C. C. P.

Appellant failed to set out in full the trial court's find-
ing in relation to this rope, and we continue where Ap-
pellant left off as follows:

"At the time of the breaking of the rope the man
who was in charge of that department was an old
showman. He was working in his line of business
in making this exhibition. If that had broken be-
cause of dry rot, he would have discovered it, and
he would have reported it to the defendant, and a part
of the rope, or the broken part, would have been saved
as a matter of protection to the defendant. But this
was not done." [Pr. Tr. pp. 43-44.]

We submit that if the rope was successfully spliced
without the removal of any part of it, this in itself was
evidence that there was no dry rot in the part that was
spliced, and if at the time of the trial it was in possession
of Appellee as claimed by Appellant, it could have been
obtained by Appellant by the use of slight diligence in dis-
covery under Rule 34 of the Federal Rules of Civil Pro-
cedure, or by subpoena duces tecum under Sec. 1985
C. C. P. At least it was in Appellant's power to obtain
possession of the rope.

—29—

The rule is well stated in a note to 70 A. L. R., p. 1326,
as follows:

"It has become a well established rule that where
evidence which would properly be part of a case is
within the control of the party whose interest it
would naturally be to produce it and without satis-
factory explanation he fails to do so, the jury may
draw the inference that it would be unfavorable to
him."

Citing :

10 R. C. L., p. 884.
And this rule is restated in 20 Am. Jur., p. 188, Sec. 183.

And in a very recent case it was held the production of
weak evidence when strong is available, can lead only to
the conclusion that the strong would have been adverse,
and silence then becomes evidence of the most convincing
character.

Int. Circuit v. United States, 306 U. S. 208, S3
L. Ed. 610, 59 S. Ct. 467.

The case of Estate of Moore, 180 Cal. 570 at 585, also
reported in 182 Pac. 285 (cited by App. Op. Br. p. 24,
line 6), is a case on wilful suppression of evidence, and
not in point.

We have no quarrel with the rule enunciated in the
other cases cited by Appellant, to-wit, Hiner v. Olson, 23
Cal. App. (2d) 227, at 234, also reported in 72 Pac. (2d)
890, on rehearing 73 Pac. (2d) 945, and the case of
Tieman v. Red Top Cab Co., 117 Cal. App. 40 at 46, also
reported in 3 Pac. (2d) 381, and recite them as sustaining
our position, and it is with a feeling of charity that we call
attention to the first sentences on pages 24-25 of Appellant's
Opening Brief as evidently a mistake, although we agree
with the conclusions therein stated.

—30—

Appellant's objections set forth under his Point IV ap-
parently are made to that part of the Court's finding read-
ing as follows:

"This property had been used in the show busi-
ness, some of it for a number of years. The ropes
had been used for one or two years, perhaps two
/ years. The defendant is familiar with the show busi-
ness, and had been in such business for some time.
He knew about the ropes, and must have known how
long those ropes would likely continue in use. The de-
fendant had in its employ a practical staff of efficient
showmen, who had been engaged in the show busi-
ness, some for many years." [Pr. Tr. p. 40, lines
11-20.]

And Appellant again uses the reporter's transcript (we
renew our objection to this practice on the part of Appel-
lant), to show by the testimony of Mr. Daillard, the "co-
ordinator" of the Great American Circus, that he was
an experienced theatre man but not a circus man. It
may be conceded that neither Daillard nor Wolff were
qualified as expert circus men, but the fact is undisputed
that they employed a number of circus men of many
years experience to act as their agents and managers of
the various departments of the circus, men who were
familiar with this particular equipment.

Singleton, the "boss canvasman" for the Great Ameri-
can Circus, testified in answer to a question by the Court
as follows:

"The Court: You say, T spliced the rope.' What
was the condition of the rope where it separated?
A. The rope was in usable condition. I bought
the rope myself and had been using it. I had been
handling this property since 1937, and had replaced
new rope from time to time, and rebuilt seats and
poles, and whatever was necessary.

—31—

The Court : Well, you have answered the question."
[Pr. Tr. pp. 131-132.]

And the further fact that Singleton was able himself to
splice the broken rope so that it not only held for the
show in Pasadena but also at Pomona the next and last
performance, would indicate familiarity with the condi-
tion of ropes.

We submit that it is a fundamental and well-settled rule
of law, that the knowledge of the agent in the course of
his agency is the knowledge of the principal.

1 Cal. Jur. 846, Sec. 125, Point 8;

F aires v. Title Ins. & Trust Co., 15 Cal. App. (2d)
350, at p. 354, 59 Pac. (2d) 428.

"As against a principal, both principal and agent are
deemed to have notice of whatever either has notice
of, and ought, in good faith and the exercise of or-
dinary care and diligence, to communicate to the

Other."

Sec. 2332 C. C

Appellant's argument under his Point V is but a repeti-
tion of the argument under Points II and IV and we feel
that it has been answered heretofore. Most of the testi-
mony cited by Appellant in his Point V is taken from the
reporter's transcript. (Op, Br. pp. 45, 46, 47.) (We
again object to the consideration of testimony not in the
printed transcript.) Suffice it to say, that of the three
witnesses whose testimony is referred to in the Opening
Brief, page 45, lines 3 and 4, Guice, the trapeze artist,
Priest, the hardware man, and Singleton, the "boss can-
vasman" who spliced the rope in question, the Court evi-
dently believed that Singleton knew more about the con-
dition of this particular rope than the others.

)

—32—
POINT V.

In Answer to Appellant's Point VIII.

The Court Had a Right to Conclude From the Admis-
sion of Appellant That One of the Reasons for
Closing the Show Was the Calling Out of a Num-
ber of the Performers by the Business Agent of
the American Federation of Actors.

The admission of Appellant that the reason for closing
the show was as contained in their telegram sent the last
night of performances at Pomona, May 31st, 1939, to
fourteen sponsors under contract with Appellant, which
telegram reads as follows :

"Kramer of American Federation of Actors has
called out acts which are members of his organiza-
tion. This and other labor difficulties which have
caused us to miss matinee performances in Santa
Ana and Pasadena necessitates us advising you with
regret we will be unable to fulfill contract for Cir-
cus performance. One of our men will contact you
later." [Pr. Tr. p. 259, lines 4-11.]

However, this was not the sole reason for closing the
show. The trial court in its conclusions, gives another
very cogent reason, to-wit:

"Operating the show for a week at a net loss of
$23,323.93." [Pr. Tr. p. 45, lines 10, 11, 20.]

Nowhere in the telegram is "faulty equipment" stated as
a reason for closing the show or missing performances.

—33—

The strike and other labor difficulties are given as the
sole reasons for closing the show.

We submit that Appellant's real objection to the con-
clusion of the trial court is that the Court failed to find
that a reason for closing the show was "faulty equip-
ment", and Appellant's self-serving argument (Op. Br.
pp. 53-54) as to its fairness and honesty in not availing
themselves sooner of the "strike" clause in their contracts
with sponsors [Pr. Tr. p. 254, Par. 7], is more ludicrous
than logical. Also, their reiteration or exaggerated claims
of faulty equipment, when their evidence at its best
showed one wagon wheel out of 104 ran dry after the
wagon had been pulled out of the sand, hub-deep, by cater-
pillars in San Diego, and one rope broke when it became
fouled and pulled on by an elephant. All of these con-
tentions were disposed of by the Court in its finding con-
trary to the Appellant's claims. The Court made up its
mind from all the evidence and facts. The items com-
plained of were infinitesimal matters in any event, when
one considers the vast amount and mass of equipment
carried by a big three ring circus, the quantity and nature
of which has become an American idiom for intricacy and
variety.

—34—
POINT VI.

In Answer to Appellant's Points IX, X, XI and XII.

The Qualifications of Expert Witnesses and the Ad-
mission of Opinion Evidence Is a Matter Within
the Discretion of the Trial Court, and There Can
Be No Abuse of That Discretion Where the Trial
Is Before the Court Without a Jury and the Court
Only Gives the Testimony Such Weight as It
Ought to Have.

Appellant's objections under Points IX, X, XI and XII
as set out in his Opening Brief, being pages 55 to 58
inclusive, we believe can be properly considered and an-
swered under one heading. These objections relate to the
testimony of Paul Eagles, J. V. Austin and Pat Graham,
on the condition and suitability of the circus equipment
leased by Appellant.

Paul Eagles testified as to his qualifications as an ex-
pert on circus equipment as follows:

"Q. During the past years of your life have you
had any connection with circuses or a circus? A.
Yes.

Q. Will you relate to the court what that connec-
tion was? A. I have been purchasing agent and
had various jobs, and also business manager, and
manager.

Q. For what period of time? A. Well, over a
period of approximately 25 years.

Q. And for what circuses did you engage in
those activities during that period of time ? A. Well,
Al G. Barnes.

Q. Relate to the court approximately what years,
and what you did for Al G. Barnes. A. Well, I
was purchasing agent and I was business manager.

—35—

Mr. Schaefer: I am sorry. I can't hear, Your
Honor.

The Court: Speak so that all of us can hear you.

A. I was purchasing agent and I was business
manager.

Q. By Mr. Combs: And for what years, Mr.
Eagles? A. The last year was 1938.

Q. What was the first year? A. Oh, about
1915 or 1914, in there.

Q. Subsequent to 1938 what circus did you work
for, if any? Did you say 1928 or 1938? A. 1938.

Q. Subsequent to that year — A. Mostly with
Al G. Barnes.

Q. Did you ever work for the Great American
Circus ? A. Yes.

Q. What year? A. In 1939.

Q. In what connection? A. Manager." [Pr. Tr.
p. 63, line 25, to p. 64, line 31.]

"Q. Was there anything else you did on that
first day, that you recall? A. Got all the stuff to-
gether and started putting it all together.

Q. Did you lay out the tent rigging, blocks and
falls? A. Singleton did.

Q. Did you direct him to do it on that day? A.
Yes.

Q. Did you examine the poles for the circus? A.
Yes.

Q. All of this equipment was second-hand or used
circus equipment, was it not? A. It was.

Q. You knew that fact at least as early as the
19th of May, did you not? A. Yes.

Q. In fact you knew it prior to that time, did
you not? A. I had it under sub-lease from No-

—36—

vember 1938 until around the middle of March, or
later, possibly.

Q. Of 1939. A. Yes, sir.

Q. You were very familiar with all of this equip-
ment? A. Yes, sir.

Q. Including both what was taken by Fanchon &
Marco for the Great American Circus and that which
was not taken; is that correct? A. That is right."
[Pr. Tr. p. 70, line 13, to p. 71, line 9.]

J. V. Austin testified as to his qualifications as fol-
lows:

"Q. By Mr. Combs: What is your occupation,
Mr. Austin? A. Showman.

Q. How long have you been engaged in that busi-
ness? A. About 40 years.

Q. And in that connection what shows have you
been involved with, as such showman? A. John
Robinson's ; Hagenbeck- Wallace ; Al G. Barnes ; Sells-
Floto; Ringling Brothers; Barnum & Bailey; and the
Great American Circus.

Q. What capacities did you work for those or-
ganizations in? A. From advertising agent to
manager.

Q. Practically every capacity of an executive
nature? A. Most every one.

Q. And in that connection did you become very
familiar with the operation and complete activities
and functions of circuses? A. Necessarily." [Pr.
Tr. p. 223, line 23, to p. 224, line 12.]

—37—

Pat Graham testified as to his qualifications as fol-
lows:

"What is your occupation? A. Circus employee.

Q. How long have you been engaged in that
capacity? A. 19 years.

Q. What character of work did you undertake
during that 19 years? A. All the way from cook
house punk up to head porter.

Q. For what circuses? A. I started on the
John Robinson Show; Sells-Floto; Hagenbeck-Wal-
lace; Sells Brothers; Al G. Barnes; McCullough
Brothers.

Q. Did you work for the Great American Cir-
cus? A. Yes, I did." [Pr. Tr. p. 275, lines 6 to 19.]

It will be remembered that all these witnesses were em-
ployees of the Appellant and worked with the Great
American Circus during its operation, and the witnesses
Paul Eagles and Pat Graham worked on and helped select
the equipment used under the lease by the Great American
Circus.

It is hard to conceive how a witness could be better
qualified to give an expert opinion of the useability and
condition of the circus equipment in the instant case than
Paul Eagles. He had worked as purchasing agent, busi-
ness manager, and manager, and in various other capaci-
ties in the circus business, for 25 years and had been
manager of the famous Al G. Barnes Circus for more
than 20 years, and was the manager of the Appellant's
circus, and had not only carefully and minutely examined
the equipment but had selected the portions to be used by
his employer, the Great American Circus, the appellant
herein. These qualifications apply equally to J. V. Austin,

—38—

of 40 years experience, and Pat Graham, of 19 years
experience.

Appellant correctly states in his Opening Brief, page 57,
lines 7 to 12, that the basis for opinion of expert testi-
mony in California is Section 1870, Subdivision 9, C. C. P.,
and the interpretation of said section by the Supreme
Court in the case of Vallejo v. Reed Orchard Company,
169 Cal. 545, also reported in 170 Pac. 426. In that
case, neither the qualifications of the expert witnesses who
were allowed to testify, nor the qualifications of the wit-
ness whose testimony was refused by the trial court, are
set out in the exhaustive opinion but the rule announced
therein has been followed by the Appellate Courts of
California in a long line of decisions ever since. This
rule is set out at page 575 as follows:

"The question whether or not a witness is qualified
to give his opinion, as evidence upon a matter in
issue, is submitted to the trial judge in the first in-
stance, and is to be determined by him before such
opinion may be given. (Fairbank v. Hughson, 58
Cal. 314.) It is, in itself, in the nature of a trial of
a question of fact, by evidence addressed to the judge
alone, and, as in other decisions on questions of fact
by a trial court, his ruling thereon is a matter of dis-
cretion and will not be overturned on appeal unless
there was an actual want of evidence to support it or
a clear abuse of discretion in ruling upon the evidence
given on the subject. (Howland v. Oakland etc. Co.,
110 Cal. 521, (42 Pac. 983); Mabry v. Randolph, 7
Cal. App. 427, (94 Pac. 403).) If there is any sub-
stantial evidence to sustain the ruling, the exception
thereto will be disallowed."

Vallejo etc. v. Reed Orchard Co., 169 Cal. 545, at
575, 170 Pac. 426.

—39—

The opinions of the witnesses in the instant case as to
the condition and useability of said equipment, were in no
way binding upon the Court, for

"It is not mandatory that the trial court accept
the conclusions of an expert, even though it is un-
contradicted."

First National Bank v. Caldwell, 84 Cal. App.
438, at 447, Point 9, 258 Pac. 411.

The cases cited by Appellant under Points XI and XII
(App. Op. Br. p. 58), fully sustain the position of Appel-
lee and the trial court's ruling. Rowland v. Oakland etc.,
110 Cal. 513, also reported in 42 Pac. 983, holds as fol-
lows:

"We cannot say the court abused its discretion in
holding that the witness McCarthy had shown him-
self sufficiently qualified to answer the hypothetical
question, tending to elicit his opinion as to whether
the car of appellant could, with proper care and at-
tention, have been stopped in time to avoid the col-
lision. This is a question largely for the determina-
tion of the trial judge, and his ruling will not be dis-
turbed except error clearly appears."

Howland v. Oakland etc., 110 Cal. 513, at 521,
42 Pac. 983.

In Kinsey v. Pacific Mutual Life Ins. Co., 178 Cal.
153, also reported in 172 Pac. 1098 (App. Op. Br. p. 58),
the question of qualifications of life guards to express
their opinion as to whether the appearance of the deceased
was indicative of death by drowning was ruled upon by
the trial court and the trial court refused to accept their

—40—

qualifications, the Supreme Court on appeal sustained the
trial court in the following language :

"As to whether or not they were thus qualified was
question for the determination of the trial judge,
and in the absence of an abuse of discretion dis-
closed by the record, his ruling should not be dis-
turbed."

Kinsey v. Pacific Mutual etc., 178 Cal. 153, at 156,
172 Pac. 1098.

In Dobbie v. Pacific Gas & Elec, 95 Cal. App. 781,
also reported in 273 Pac. 630 (App. Op. Br. p. 58), there
was no question of the qualification of the witness. The
Appellate Court in sustaining the trial court, merely held
that the question asked did not call for "opinion evidence",
and further said:

"The admission or exclusion of such evidence rests
largely within the discretion of the trial court, which
in the present instance was not abused."

Dobbie v. Pacific Gas & Elec, 95 Cal. App. 781,
at 792, 273 Pac. 630.

The language of the rulings of the trial court in the
instant case clearly shows that the Appellant suffered no
harm from the admission of the testimony of Paul Eagles.

"The Court: He is giving his ideas as a man
familiar with this sort of business, and I think it is
proper. The Court will only give it such weight as
it ought to have anyway." [Pr. Tr. p. 89, lines 6-9.]

And in answer to the objection made against testimony of
Pat Graham:

"The Court: The Court will consider it if it has
any value." [Pr. Tr. p. 280, lines 25-26.]

-41—

POINT VII.

In Answer to Appellant's Point XIII.

There Is No Need of a Finding on an Immaterial
Allegation of the Complaint in Relation to Mitiga-
tion of Damages, Where Appellant Submitted No
Evidence in Relation Thereto and the Stipulation
and Agreement of the Parties Confirmed by the
Court at the Pretrial Hearing, Limited the Issues
and Did Not Include "Mitigation of Damages" as
an Issue.

In answer to Appellant's Point XIII of his Opening
Brief, we submit that the allegation of Appellee's com-
plaint referred to, to-wit, "that plaintiff made every en-
deavor during the remainder of the term of said contract
to let said property to others but was unable so to do",
is an immaterial allegation or surplusage, and its inser-
tion is merely an anticipation of a defense. It was not
even necessary for Appellant to deny the same, and his
denial raised no issue nor shifted the burden of proof
from Appellant to Appellee on a matter which Appellant
admits that proof of "mitigation of damages" rests upon
the defendant (Op. Br. p. 59, lines 10-12).

Appellant's admission, however, is but a re-statement of
the well-settled law of California that "the burden of
showing facts in mitigation of damages rests upon the
defendant".

Andersen v. La Rinconada Country Club, 4 Cal.
App. (2d) 197, at 201, Point 4, 40 Pac. (2d)
571;

Vitagraph, Inc. v. Liberty Theatre Co., 197 Cal.
694, at 699, Point 2, 242 Pac. 709.

—42—

Where in a suit upon a contract, plaintiff alleged that
he had performed all the conditions of the contract on his
part to be performed and defendant denied this allegation
and urged upon appeal that it was incumbent upon plain-
tiff to prove the allegation, the Appellate Court said in
affirming the decision for plaintiff:

"In the first place, the complaint stated a complete
cause of action without Paragraph IV, and the con-
tract being pleaded in terms and not being set forth
in full, Paragraph IV may be considered as sur-
plusage, or at least an immaterial allegation which it
is not necessary to deny. (21 Cal. Jur. 143.)"

Easom v. General Mortgage Co., 101 Cal. App.
186, at 190, Point 3, 281 Pac. 514.

Appellant presented no evidence concerning mitigation
of damages and he should not now be heard to complain,
when the duty rested upon Appellant to have presented
evidence of this character.

Where an objection on appeal that the trial court failed
to take into account matters of mitigation of damages
when the Appellant had offered no evidence on such
"mitigation", the Appellate Court said:

"It does not appear from the record that any in-
dependent evidence was presented to the trial court
heard relative to the value of these elements. Appel-
lant will not now be heard to complain that the court
failed to take into account elements in mitigation of
damages, when the duty rested upon it to have pre-
sented evidence of this character."

Kramer v. Associated Almond Growers, 111 Cal.
App. 595, at p. 600, Point 5, 295 Pac. 873.

—43—

The cases cited by Appellant to sustain his argument
that the burden of proof shifted from Appellant to Ap-
pellee are warehouse or bailment cases, and in each case
the burden was held to be with the defendant. The first
case, Wilson v. Crown Transportation, 201 Cal. 701, also
reported in 258 Pac. 596, was decided on the application
and construction of Sec. 8 of the Warehouse Receipt
Act, Statutes 1909, page 437, and that part of Sec. 8
which reads as follows:

"In case the warehouseman refuses or fails to de-
liver the goods in compliance with the demand by the
holder or depositor so accompanied, the burden shall
be upon the warehouseman to establish the existence
of a lawful excuse for such refusal,"

the Court saying at page 707:

"It would be difficult to give a reasonable con-
struction to the statute without attributing to it the
force of placing the burden of proof for failure to
deliver on the warehouseman."

The other cases cited are either warehouseman or bail-
ment cases, the rule of law being the same in either case.

This question of "pleading", however, in the instant

case is a moot one, for upon stipulation of the parties

at the pretrial hearing the issue was limited as follows:

"The issue will be limited to the condition of the

equipment when delivered to the defendant and to

losses, if any, recoverable that were occasioned by

the deficiency of the equipment, if any." [Pr. Tr. p.

39, lines 7 to 10.]

There was never any modification of the stipulation at
the trial.

—44—

A pretrial stipulation is binding, unless modified at the
trial.

Federal Rules Civil Procedure, Rule XVI.

"At the pretrial conference, it was stipulated that
Florida was the place of the making of the contract
and the stipulation was made a part of the pretrial
order. This pretrial stipulation is binding unless
modified at the trial. (Federal Rules Civil Procedure,
Rule XVI.) At the trial there was evidence from
which it could be inferred that the contract was exe-
cuted in Texas but the order was not modified and we
hold the stipulation is binding."

Ringling Bros.-Barnum & Bailey Combined Shows
v. Olvera, 119 Fed. (2d) 584, decided May 2,
1941.

Conclusion.

In conclusion Appellee submits:

The Appellants herein not only had an opportunity to
inspect and examine the property leased by them, but by
their authorized agents did inspect, examine and select
the equipment leased to them prior to the signing of this
agreement. That Appellees fulfilled every requirement of
this contract and Sec. 1955 of the California Civil Code.
The equipment as found by the Court was in good condi-
tion and ready for use at the time of delivery and Appel-
lants paid the expense of repairs to such minor articles
as were requested by Appellants. There was no conceal-
ment of any kind on the part of Appellee. That the
issues in the case were confined to the question of condi-
tion of the equipment at the time of delivery by stipula-
tion and pretrial order of the Court. The trial court is
the sole judge of the credibility of witnesses and the suf-

—45—

ficiency of the evidence to sustain its findings. The quali-
fication of expert witnesses and the admission of opinion
evidence is also a matter within the discretion of the trial
court. None of the rulings of the trial court in regard
to the admission of evidence which was objected to by
appellant were harmful and if error it was harmless. The
finding by the Court that Appellant had waived any ob-
jection to that part of this equipment which was repaired
at the expense of Appellee was fully justified by the evi-
dence and the law and the finding that Appellant knew of
and was familiar with the circus business through its
agents of long experience in this business is fundamentally
sound. And finally, the trial court heard all the wit-
nesses, observed their demeanor on the stand and ex-
amined the written documents introduced in evidence, and
the trial court's finding and conclusion thereon should be
sustained under Section 52 of the Federal Rules of Civil
Procedure.

Respectfully submitted,

Combs & Murphine,
Lee Combs,
Thos. F. Murphine,
John F. Reddy, Jr.,
By Lee Combs,

Attorneys for Appellee.

No. 9779.

f

IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Fanchon & Marco, Inc., a corporation,

Appellant,

vs.

Hagenbeck- Wallace Shows Company, a corporation,

Appellee.

APPELLANTS REPLY BRIEF.

Macfarlane, Schaefer, Haun & Mulford,
James H. Arthur and
William Gamble,

By Henry Schaefer, Jr.
1150 Subway Terminal Building, Los Angeles,

Attorneys for Appellant.

FILED

Parker & Baird Company, Law Printers, Los Angeles.

PAUL P. O'BRIEN,

•UUUC

TOPICAL INDEX.

PAGE

Summary of Argument 1

Point I. In Answer to Appellee's Point 1 2

There is a complete lack of credible testimony to support the
finding attacked by the appellant 2

Point II. In Answer to Appellee's Point II 3

The deleted portion of the contract is available to the court in
determining the intention of the parties respecting waiver.... 3

Point III. In Answer to Appellee's Point IV 4

There can be no adverse presumption from the non-production
of evidence when the burden is not upon the party to pro-
duce evidence 4

Point IV. In Answer to Appellee's Point VI 5

Opinion evidence is not admissible without a sufficient showing
that the expert is qualified as to knowledge or skill 5

Conclusion 6

TABLE OF AUTHORITIES CITED.

Cases. page

Hales v. Snowden, 19 Cal. App. (2d) 366 2

Neilson v. Houle, 200 Cal. 726 2

Textbooks.
10 California Jurisprudence 959 5

No. 9779.
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Fanchon & Marco, Inc., a corporation,

Appellant,
vs.

Hagenbeck-Wallace Shows Company, a corporation,

Appellee.

APPELLANT'S REPLY BRIEF.

Summary of Argument.

Point I.

There is a complete lack of credible testimony to support
the rinding attacked by the appellant.

Point II.

The deleted portion of the contract is available to the
court in determining the intention of the parties respecting
waiver.

Point III.

There can be no adverse presumption from the non-
production of evidence when the burden is not upon the
party to produce evidence.

Point IV.

Opinion evidence is not admissible without a sufficient
showing that the expert is qualified as to knowledge or
skill.

— 2—

Point I. — In Answer to Appellee's Point I.

There Is a Complete Lack of Credible Testimony
to Support the Finding Attacked by the
Appellant.

It may be conceded that the general rule is that the
appellate court will not consider conflicts in testimony
and will resolve any doubt in favor of the rinding by the
trial court. There are, however, exceptions to this general
rule, and it is appellant's earnest contention that the facts
in the present case fall within one of the exceptions.

The case of Neilson v. Houle, 200 Cal. 726, states an
exception on page 727:

"Where testimony, in the light of the undisputed
facts, is so inherently improbable and impossible of
belief as to, in effect, constitute no evidence at all,
the rule that the amount of credit to be given to the
positive testimony of any witness is solely a question
for the trial tribunal, does not apply. Undoubtedly
an appellate court, in reviewing the evidence, is bound
to exercise its intelligence, and in doing so must
recognize that certain facts are controlled by im-
mutable physical laws. . . . Even if there is a
certain degree of improbability about much of the
evidence that leaves it unsatisfactory to the mind of
the appellate court, if it is not contradicted nor im-
peached except by its own weakness the decision of
the lower court will not be disturbed."

In Hales v. Snowden, 19 Cal. App. (2d) 366, it is
stated by the court, on page 372:

"Of course, testimony which is inherently im-
probable may be disregarded (Neilson v. Houle, 200
Cal. 726 (254 Pac. 891)), but to warrant such action
there must exist either a physical impossibility of the

— 3—

evidence being true, or its falsity must be apparent,
without any resort to inferences or deductions.
(Powell v. Powell, 40 Cal. App. 155 (180 Pac. 346) ;
Stahmer v. Stahmer, 125 Cal. App. 132 (13 Pac.
(2d) 833).)"

A review of appellee's evidence as presented at the
trial which is fully discussed under appellant's opening
brief, Point III, clearly shows that the witnesses and evi-
dence elicited from them is so incredible and impossible
of belief as to constitute no evidence at all and any finding
based upon such evidence would be clearly erroneous.

No extended discussion will be here indulged in, as the
evidence has been fully covered in the opening brief.

Point II. — In Answer to Appellee's Point II.

The Deleted Portion of the Contract Is Available
to the Court in Determining the Intention of
the Parties Respecting Waiver.

Appellee has completely failed to comprehend the import
of appellant's argument with respect to the deleted clause
of the contract.

The deleted clause would have no modifying effect on
the other terms and conditions contained in the contract,
but the clause is nevertheless a part of the "four corners"
of the instrument and can be considered in determining
the interpretation of the contract and the intention of the
parties at the time the contract was entered into.

It is for the purpose of determining the existence of a
waiver that the clause is of prime significance. In view
of its deletion, there can be drawn the inference that there
was a reliance upon the terms of the contract that the
equipment would be delivered "in good condition and ready

for use" at the time the contract was executed. There
must be a showing subsequent to the execution of the
contract to justify such a finding.

The appellee cannot point to any evidence in the record
which indicated that appellant waived the terms of the
contract. True the appellant was forced to make repairs
in order to fulfill its obligation to produce a circus in
accordance with the sponsors' contracts. There is, how-
ever, no conflict nor contradiction of the fact that appellant
continually protested the deficiencies in the equipment.

The contention of appellee that waiver is a question of
fact is not supported by the cases which it cites. Waiver
is a mixed question of law and fact. But there can be no
dispute about the law, for there is no evidence of waiver
to be found in the record and any finding thereon is com-
pletely unsupported both in law and fact.

Point III. — In Answer to Appellee's Point IV.

There Can Be No Adverse Presumption From the
non-production of evidence when the burden
Is Not Upon the Party to Produce Evidence.

Whatever the basis for the trial court's presumption
may be, it is impossible to follow appellee's logic in its
argument that it was upon the appellant to produce the
higher evidence or suppressed evidence with respect to
the rope when the appellee assumed the burden of proving
the condition of the rope.

The appellee alleged in its complaint that the equipment
was delivered in accordance with the terms of the contract.
[Pr. Tr. p. 2.] The appellee attempted to prove this
allegation by the testimony of its witnesses. The onus
was, therefore, upon appellee and any intendment to be
drawn from the non-production of the rope should have

— 5—

been against appellee. Appellant neither had the burden
to prove the condition, nor did it have the evidence in its
possession. Appellee had assumed the burden of proof,
and had the evidence in its possession, yet it asks the
court to raise an adverse presumption against the appellant
because it did not produce evidence which was part of
appellee's case.

Point IV. — In Answer to Appellee's Point VI.

Opinion Evidence Is Not Admissible Without a
Sufficient Showing That the Expert Is Quali-
fied as to Knowledge or Skill.

Appellee attempts to justify the admission of the evi-
dence objected to on behalf of appellant by showing the
qualification of the witnesses.

The whole force of appellee's argument is lost when
it is realized that appellant is not questioning the wit-
nesses' qualifications as persons skilled in the circus trade.
True as that may be, it is not shown that these experts
made any sufficient examination of the equipment to
qualify them to express an opinion with respect to this
specific property. The testimony set forth under Points
IX, X, XI and XII of appellant's opening brief shows
that the experts had not made an examination sufficient
to enable them to make any deductions with respect to
the condition of the equipment. In order to form an
opinion the expert must be presented with a hypothetical
set of facts, or have an opportunity to make an observa-
tion of the physical facts.

In 10 Cal. Jur. 959 it is said, with respect to opinion
evidence, that there are two classes of cases where opinions
are admissible. The first is where the conclusion is to

be drawn from facts which are not common knowledge.
The jury is then given the facts and draws its own con-
clusion. The present case does not fall within this class,
but, rather, in the second class, of which it is said at
page 960:

"In the other class are found those cases in which
the conclusions to be drawn from the facts stated,
as well as knowledge of the facts themselves, depend
upon professional or scientific knowledge or skill not
within the range of ordinary training or intelligence."
(Italics ours.)

It cannot be stated that the witnesses show they had
sufficient knowledge of the facts to warrant an expression
of an opinion. None had made a complete and thorough
examination of the equipment; and in the evidence given
under Point X of appellant's opening brief the witness
was not even present nor was a state of facts given to
him upon which he could base an opinion. His testimony
was idle speculation.

Conclusion.

The arguments presented under the other points in
appellee's brief have been amply answered by appellant
in its opening brief, therefore it is unnecessary to discuss
them here. We submit that errors committed by the trial
court entitle appellant to a reversal of the judgment.

Respectfully submitted,

Macfarlane, Schaefer, Haun & Mulford,
James H. Arthur and
William Gamble,

By Henry Schaefer, Jr.

Attorneys for Appellant.

No. 9813

Wlnittb States

Circuit Court of appeals

Jfor tfje jSintfj Circuit*

SIGNAL OIL AND GAS COMPANY, a Cor-
poration, Appellant.

vs.

UNITED STATES OP AMERICA,

Appellee.

Itomgcrtpt of ikmri

Upon Appeals from the District Court of the United
States for the Southern District of California,

Central Division fc^O

JUN-8 194!

PAUL P. O'BRIEN,

•LEAK

PARKER PRINTING COMPANY. 345 SANSOME STREET. SAN FRANCISCO

No. 9813

Unite* States:

Circuit Court of appeals

tfot tfje Mintb Circuit.

SIGNAL OIL AND GAS COMPANY, a Cor-
poration, Appellant.

vs.

UNITED STATES OP AMERICA,

Appellee.

Cransicript of Eecnri

Upon Appeals from the District Court of the United

States for the Southern District of California,

Central Division

PARKER PRINTING COMPANY. S4S SAMSOME STREET. SAN FRANCISCO

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

Answer of Defendant (Case No. 1460-Y) 16

Answer of Defendant (Case No. 1461- Y) 21

Answer of Defendant, Amended and Supple-
mental (Case No. 1461- Y) 42

Appeal :

Designation of Contents of Record on,
Stipulated (District Court) 68

Designation of Contents of Record on,
Stipulated (Circuit Court of Appeals) 103

Notice of (Case No. 1460-Y) 63

Notice of (Case No. 1461-Y) 64

Order Extending Time to Docket Cause
on 66

Order for Transmittal of Original Exhibits
on _ _ 70

Stipulation for Consolidated Record on 65

Statement of Points on _ 101

Attorneys, Names and Addresses of „ 1

Complaint, Bill of (Case No. 1460-Y) 2

Complaint, Bill of (Case No. 1461-Y) 9

ii Signal Oil and Gas Co.

Index Page

Conclusions of Law „ 59

Decision of Court (Case No. 1460- Y) 45

Decision of Court (Case No. 1461-Y) - 46

Designation of Contents of Record on Appeal,

Stipulated (District Court) 68

Designation of Contents of Record on Appeal,

Stipulated (Circuit Court of Appeals) 103

Findings of Pact and Conclusions of Law 48

Judgments for Plaintiff _ „.. 61

Names and Addresses of Attorneys of Record 1

Notice of Appeal (Case No. 1460-Y) 63

Notice of Appeal (Case No. 1461-Y) 64

Order Consolidating Cases, Minute -.. 41

Order Extending Time to Docket Cause on Ap-
peal _ _ - 66

Order Transferring Case No. 1461 to Judge

Yankwich 26

Order for Transmittal of Original Exhibits on

Appeal 70

Statement of Points on Appeal 101

Stipulation Designating Contents of Record on

Appeal (District Court) _.. 68

Stipulation for Consolidated Record on Appeal 65

Stipulation of Pacts (Case No. 1460-Y) 26

Stipulation of Facts (Case No. 1461-Y) 33

vs. United States of America iii

Index Page

Testimony „ 72

Exhibits for plaintiff :

1 — Notice re: Conveyance of assets 83

2 — Decree of dissolution of Signal
Gasoline Corporation 86

4 — Consent fixing period of limitation
upon assessment of income and
profits tax 91

6 — Power of attorney, dated Novem-
ber 21, 1928 92

7 — Power of attorney, dated Novem-
ber 20, 1929 95

9 — Assessment Certificate — Commis-
sioner's Assessment List, dated Oc-
tober 1, 1932 97

J — Assessment Certificate — Commis-
sioner's Assessment List, dated
September 10, 1932 88

NAMES AND ADDRESSES OP ATTORNEYS

For Appellant:

MELVIN D. WILSON, Esq.,
JOSEPH D. PEELER, Esq.,

819 Title Insurance Building,

Los Angeles, California.

For Appellee:

WILLIAM FLEET PALMER, Esq.,

United States Attorney,
E. H. MITCHELL, Esq.,

Assistant United States Attorney,

ARMOND MONROE JEWELL, Esq.,

Assistant United States Attorney,

600 United States Postoffice & Courthouse

Building,
Los Angeles, California. [1*]

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

2 Signal Oil and Gas Co,

In the District Court of the United States in and
for the Southern District of California, Central
Division.

In Equity No. 1460-Y

UNITED STATES OF AMERICA,

Complainant,
vs.

SIGNAL OIL AND GAS COMPANY,

Defendant.

BILL OF COMPLAINT

To the Honorable Judges of the District Court of

the United States for the Southern District

of California:

The United States of America, complaining of

the above-named defendant, respectfully shows to

the Court:

I.
That at all times hereinafter mentioned com-
plainant was and now is a corporation sovereign
and body politic.

II.
That the defendant, Signal Oil and Gas Com-
pany, is a corporation organized under the laws of
the State of Delaware on June 25, 1928, with offices,
and doing business, in the city of Los Angeles and
within the jurisdiction of this Court.

III.

That this is a suit in equity by the United States
of America of a civil nature, arising under the laws

vs. United States of America 3

of the United States providing for internal reve-
nue and the collection thereof brought at the direc-
tion of the Attorney General, and begun and prose-
cuted with the sanction, and at the request of, the
Commissioner of Internal Revenue, to obtain re-
lief of the defendant, the complainant having no
clear, adequate or complete remedy at law, as will
more properly appear in succeeding allegations. [2]

IV.

That the Signal Gasoline Company, a corpora-
tion now dissolved, was organized under the laws
of the State of California on December 15, 1922,
and thereafter engaged in the manufacture and
sale of gasoline, with offices, and doing business, in
the City of Los Angeles, and within the jurisdic-
tion of this Court.

V.

That the Signal Gasoline Corporation, a corpo-
ration now dissolved, was organized under the laws
of the State of California on February 11, 1924,
and thereafter engaged in the manufacture and
sale of gasoline, with offices, and doing business,
in the City of Los Angeles, and within the juris-
diction of this Court.

VI.

That pursuant to an agreement between the Sig-
nal Gasoline Company and the Signal Gasoline
Corporation dated May 1, 1924, all the assets and
liabilities of the Signal Gasoline Company were

4 Signal Oil and Gas Co.

turned over to the Signal Gasoline Corporation,
for 400,000 shares of stock of the Signal Gasoline
Corporation, and on September 11, 1924, the Sig-
nal Gasoline Company was dissolved. The 400,000
shares received by the Signal Gasoline Company in
exchange for its assets and liabilities were distrib-
uted to its stockholders.

VII.

That the Signal Gasoline Company, Incorporated,
a corporation now dissolved, was organized under
the laws of the State of California on December
30, 1924, and was as hereinafter indicated a hold-
ing company for the stock of the Signal Gasoline
Corporation.

VIII.

That on July 31, 1928, the Signal Gasoline Com-
pany, Incorporated, owned 419,500 shares of the
stock of the Signal Gasoline Corporation, which
was 93.22% of the outstanding 450,005 shares of
the Signal Gasoline Corporation; the balance of
30,505 shares of the stock outstanding of Signal
Gasoline Corporation (4.23%) was owned by indi-
vidual stockholders of the Signal Gasoline Com-
pany, Incorporated. [3]

IX.

That on August 1, 1928, the defendant, Signal
Oil and Gas Company, acquired all the assets of
the Signal Gasoline Company, Incorporated, which,
as noted above, included 93.22% of the stock of

vs. United States of America 5

the Signal Gasoline Corporation, in exchange for
stock of the Signal Oil and Gas Company.

X.

That on or about November 30, 1928, the defend-
ant, Signal Oil and Gas Company, acquired the
remaining 4.23% of the outstanding stock of the
Signal Gasoline Corporation from the individual
stockholders by exchange for stock of the Signal
Oil and Gas Company.

XI.

That the Signal Gasoline Corporation was liqui-
dated as of December 1, 1928, all its assets and
liabilities being assigned to its sole stockholder,
the defendant Signal Oil and Gas Company, and
the Signal Gasoline Corporation was dissolved by
court order on December 12, 1928.

XII.

That the income tax return of the now dis-
solved Signal Gasoline Company for the calendar
year 1923 was filed with the Collector of Internal
Revenue for the Sixth District of California on
March 15, 1924, and its income tax return for the
period ended September 11, 1924, was similarly
filed on May 13, 1925.

XIII.

That on October 2, 1928, the Commissioner of
Internal Revenue addressed a letter to the Signal
Gasoline Corporation, as transferee of the Sig-

6 Signal Oil and Gas Co.

nal Gasoline Company, notifying it that a defi-
ciency of $468.33 for income taxes for the year
1923 had been determined.

XIV.

That on December 28, 1929, the Commissioner
of Internal Revenue addressed a letter to the Sig-
nal Gasoline Corporation, as transferee of the Sig-
nal Gasoline Company, notifying it that a [4] de-
ficiency of $2,672.53 for income taxes for the period
ended September 11, 1924, had been determined.

XV.

That thereafter petitions were filed with the
Board of Tax Appeals for a redetermination of
the proposed deficiency referred to in Paragraphs
XIII and XIV above, and by an order entered
on February 16, 1932, the Board of Tax Appeals
held that the Signal Gasoline Corporation was
liable for the sums indicated as transferee of the
Signal Gasoline Company. (Signal Gasoline Cor-
poration vs. Commissioner, 25 B. T. A. 532.)

XVI.

That no further appeal was taken and on Sep-
tember 10, 1932, the Commissioner of Internal Reve-
nue assessed against the Signal Gasoline Corpo-
ration for the year 1923 a tax of $468.33, plus
interest of $227.96, and for the period ended Sep-
tember 11, 1924, a tax of $2,672.53, plus interest of
$1,200.70.

vs. United States of America 7

XVII.

That no part of the above taxes with interest
so assessed for the year 1923 and for the period
ended September 11, 1924, has been paid.

XVIII.

That by reason of the dissolution of the Signal
Gasoline Corporation and the distribution of all
its assets to the defendant, its sole stockholder,
the Signal Gasoline Corporation was and is left
without money, assets or property of any kind with
which to pay said taxes due the United States.

XIX.

That the net assets which were acquired by the
defendant Signal Oil and Gas Company, as sole
stockholder of the Signal Gasoline Corporation, as
heretofore shown, were in excess of the amount of
the above-mentioned taxes with interest for the
year 1923 and for the period ended September 11,
1924, and in excess of the amount for which re-
covery is sought herein. [5]

XX.

That due demand for the payment of said taxes
with interest has been made upon the Signal Oil
and Gas Company, but said demand has not been
complied with and the taxes remain unpaid.

Wherefore, in consideration of the premises and
the facts heretofore stated, the complainant comes
before the Court and prays:

8 Signal Oil and Gas Co,

1. That the Honorable Court order, adjudge and
decree that the defendant, Signal Oil and Gas Com-
pany, be accountable to complainant and liable for
the aforesaid taxes in the sum of $4,569.52, with
interest from September 10, 1932, and that said de-
fendant, Signal Oil and Gas Company be ordered
to pay to complainant said unpaid taxes with in-
terest.

2. That this Honorable Court order, adjudge and
decree that the assets of the Signal Gasoline Cor-
poration which were transferred to the defend-
ant, Signal Oil and Gas Company, constitute a
trust fund for the payment of the aforesaid taxes
assessed against the Signal Gasoline Corporation,
and that the defendant, Signal Oil and Gas Com-
pany, shall account to this Court for the afore-
said trust property, and the fund aforesaid be
applied to the payment of the said taxes.

3. That the complainant have such other and
further relief, general and special, as may appear
to the Court to be just and equitable, as well as
a decree for costs.

And may it please the Court to grant unto said
complainant a writ of subpoena of the United
States of America issued out of and under the seal
of this Honorable Court, directed to the above-
named defendant, and commanding it on a day
certain and under certain penalties therein ex-
pressed, personally to appear before this Honor-
able Court, then and there to answer all and sin-
gular the premises, and to stand to and perform
and abide by such orders, directions and decrees

vs. United States of America 9

as may be made against it in the premises, and
complainant will ever pray.

BEN HARRISON,

United States Attorney.
E. H. MITCHELL,
Assistant United States Attorney.

ARMOND MONROE JEWELL,
Assistant United States Attorney.
By ARMOND MONROE JEWELL,
Assistant United States Attorney.

[Endorsed]: Filed Step. 9, 1938. [6]

In the District Court of the United States in and
for the Southern District of California, Cen-
tral Division.

Equity No. 1461-RJ

UNITED STATES OF AMERICA,

Complainant.

vs.

SIGNAL OIL AND GAS COMPANY,

Defendant.

BILL OF COMPLAINT

To the Honorable Judges of the District Court of
the United States for the Southern District of
California :
The United States of America, complaining of
the defendant, respectfully shows to the Court:

10 Signal Oil cmd Gas Co.

I.

That at all times hereinafter mentioned com-
plainant was and now is a corporation sovereign
and body politic.

II.

That the defendant, Signal Oil and Gas Com-
pany is a corporation organized under the laws of
the State of Delaware on June 25, 1928, with of-
fices, and doing business, in the city of Los An-
geles, and within the jurisdiction of this Court.

III.

That this is a suit in equity by the United States
of America of a civil nature, arising under the
laws of the United States providing for internal
revenue and the collection thereof, brought at the
direction of the Attorney General, and begun and
prosecuted with the sanction and at the request
of the Commissioner of Internal Revenue, to ob-
tain relief of the defendant, the complainant having
no clear, adequate or complete remedy at law, as
will more properly appear in succeeding allegations.

m

IV.

That the Signal Gasoline Corporation, a corpo-
ration now dissolved, was organized under the laws
of the State of California on February 11, 1924,
and thereafter engaged in the manufacture and
sale of gasoline, with offices and doing business
in the City of Los Angeles and within the juris-
diction of this court.

vs. United States of America 11

V.

That the Signal Gasoline Company, Incorpo-
rated, a corporation, now dissolved, was organ-
ized under the laws of the State of California on
December 30, 1924, and was as hereinafter indi-
cated a holding company for the stock of the Sig-
nal Gasoline Corporation.

VI.

That on July 31, 1928, the Signal Gasoline Com-
pany, Incorporated, owned 419,500 shares of the
stock of the Signal Gasoline Corporation, which
was 93.22% of the outstanding 450,005 shares of
the Signal Gasoline Corporation; the balance of
30,505 shares of the Signal Gasoline Corporation
(4.23%) wras owned by individual stockholders.

VII.

That on August 1, 1928, the defendant, Signal
Oil and Gas Company, acquired all the assets of
the Signal Gasoline Company, Incorporated, which,
as noted above, included 93.22% of the stock of
the Signal Gasoline Corporation, in exchange for
stock of the Signal Oil and Gas Company.

VIII.

That on or about November 30, 1928, the de-
fendant, Signal Oil and Gas Company acquired
the remaining 4.23% of the outstanding stock of
the Signal Gasoline Corporation from the indi-
vidual stockholders of the Signal Gasoline Com-

12 Signal Oil and Gas Co.

pany, Incorporated, by exchange for stock of the
Signal Oil and Gas Company.

IX.

That the Signal Gasoline Corporation was liqui-
dated as of December 1, 1928, all its assets and
liabilities being assigned to [8] its sole stockholder,
the defendant Signal Oil and Gas Company, and
the Signal Gasoline Corporation was dissolved by
court order on December 12, 1928.

X.

That the income tax return of the now dis-
solved Signal Gasoline Corporation for the period
from February 11, 1924 (the date of its incorpo-
ration) to December 31, 1924 was filed with the
Collector of Internal Revenue for the Sixth Dis-
trict of California on May 13, 1925. This period of
time is hereinafter referred to as the year 1924.

XI.

That on December 3, 1928, the Signal Gasoline
Corporation filed Form 872 extending the period
for assessment for any deficiency in tax which
might be assessed for the year 1924 until Decem-
ber 31, 1929.

XII.

That on December 28, 1929, the Commissioner
of Internal Revenue addressed a letter to the Sig-
nal Gasoline Corporation notifying it, in accord-
ance with Section 274 of the Revenue Act of 1926,

vs. United States of America 13

that a deficiency of $14,137.05 for income taxes
for the year 1924 had been determined. Said no-
tice of deficiency also included a determination
with respect to deficiencies in income taxes for
the year 1925 and 1926 which are not here involved.

XIII.

That thereafter a petition was filed with the
Board of Tax Appeals for a redetermination of
the proposed deficiencies referred to in Paragraph
XII above, and by an order entered on March
15, 1932, the Board of Tax Appeals determined
that the asserted deficiencies were correct. (Signal
Gasoline Corporation vs. Commissioner, 25 B. T.
A. 861.)

XIV.

That no further appeal was taken with respect
to the defi- [9] ciency asserted for the year 1924,
and on October 1, 1932, the Commissioner of In-
ternal Revenue assessed against the Signal Gaso-
line Corporation for the year 1924 a tax of $14,-
137.05, plus interest of $6,080.77.

XV.

That no part of the above tax with interest so
assessed for the year 1924 has been paid.

XVI.

That by reason of the dissolution of the Signal
Gasoline Corporation and the distribution of all
its assets to the defendant, its sole stockholder, the
Signal Gasoline Corporation was and is left with-

14 Signal Oil and Gas Co.

out money, assets or property of any kind with
which to pay said tax due the United States.

XVII.

That the net assets which were acquired by the
defendant, Signal Oil and Gas Company, as sole
stockholder of the Signal Gasoline Corporation, as
heretofore shown, were in excess of the above-
mentioned tax with interest for the year 1924, and
in excess of the amount for which recovery is
sought herein.

XVIII.

That due demand for the payment of said tax
with interest has been made upon the Signal Oil
and Gas Company, but said demand has not been
complied with and the tax remains unpaid.

Wherefore, in consideration of the premises and
the facts heretofore stated, the complainant comes
before the Court and prays:

1. That the Honorable Court order, adjudge
and decree that the defendant Signal Oil and Gas
Company be accountable to complainant and lia-
ble for the aforesaid tax in the sum of $20,217.82
with interest from October 1, 1932, and that said
defendant Signal Oil and Gas Company be ordered
to pay to complainant said unpaid tax with in-
terest. [10]

2. That this Honorable Court order, adjudge
and decree that the assets of the Signal Gasoline
Corporation, which were transferred to the defend-
ant, Signal Oil and Gas Company, constitute a

vs. United States of America 15

trust fund for the payment of the aforesaid tax
assessed against the Signal Gasoline Corporation,
and that the defendant, Signal Oil and Gas Com-
pany shall accoimt to this Court for the aforesaid
trust property, and the fund aforesaid be applied
to the payment of the said tax.

3. That the complainant have such other and
further relief, general and special, as may appear
to the Court to be just and equitable, as well as a
decree for cost.

And may it please the Court to grant unto said
complainant a writ of subpoena to the United
States of America issued out of and under the
seal of this Honorable Court, directed to the above-
named defendant, and commanding it on a day
certain and under certain penalties therein ex-
pressed, personally to appear before this Honor-
able Court, then and there to answer all and sin-
gular the premises, and to stand to and perform and
abide by such orders, directions and decrees as
may be made against it in the premises and com-
plainant will ever pray.

BEN HARRISON,

United States Attorney.
E. H. MITCHELL,

Asst. United States Attorney.
ARMOND MONROE JEWELL,

Asst, United States Attorney.
By ARMOND MONROE JEWELL,

Attorneys for Plaintiff.

[Endorsed]: Filed Sep. 9, 1938. [11]

16 Signal Oil and Gas Co.

[Title of District Court and Cause— No. 1460-Y.]

ANSWER

To the Honorable Judges of the District Court of
the United States, for the Southern District
of California:
The defendant, Signal Oil and Gras Company, an-
swering the bill of complaint on file herein, denies,
admits and alleges as follows :

I.

Defendant admits the allegations contained in
Paragraph I of the complaint.

II.

Defendant admits the allegations contained in
Paragraph II of the complaint.

III.

Defendant has no information or belief as to the
matters alleged in Paragraph III of the complaint,
and upon such lack of information or belief, denies
the allegations contained in Paragraph III of the
complaint. [12]

IV.

Defendant admits the allegations contained in
Paragraph IV of the complaint.

V.

Defendant admits the allegations contained in
Paragraph V of the complaint.

vs. United States of America 17

VI.

Defendant denies the allegations contained in
Paragraph VI of the complaint.

VII.

Defendant admits that Signal Gasoline Company,
Incorporated, a corporation now dissolved, was or-
ganized under the laws of the State of California
on December 30, 1924. Defendant denies the other
allegations contained in Paragraph VII of the com-
plaint.

VIII.

Defendant denies the allegations contained in
Paragraph VIII of the complaint.

IX.

Defendant denies the allegations contained in
Paragraph IX of the complaint.

X.

Defendant denies the allegations contained in
Paragraph X of the complaint.

XI.

Defendant admits that Signal Gasoline Corpora-
tion was dissolved by court order on December 12,
1928, and denies the other allegations contained in
Paragraph XI of the complaint. [13]

XII.

Defendant admits the allegations contained in
Paragraph XII of the 'complaint.

18 Signal Oil and Gas Co.

XIII.

Defendant admits the allegations contained in
Paragraph XIII of the complaint.

XIV.

Defendant denies the allegations contained in
Paragraph XIV of the complaint, on the ground
that Signal Gasoline Corporation was dissolved on
December 12, 1928.

XV.

Defendant denies the allegations contained in
Paragraph XV of the complaint, on the ground
that Signal Gasoline Corporation was dissolved on
December 12, 1928.

XVI.

Defendant admits that no further appeal was
taken and denies the other allegations contained in
Paragraph XVI of the complaint, on the ground
that Signal Gasoline Corporation was dissolved on
December 12, 1928.

XVII.

Defendant admits the allegations contained in
Paragraph XVII of the complaint.

XVIII.

Defendant denies the allegations contained in
Paragraph XVIII of the complaint. [14]

XIX.

Defendant denies the allegations contained in
Paragraph XIX of the complaint.

vs. United States of America 19

XX.

Defendant denies that demand for the payment
of said taxes, with interest, has been made on de-
fendant, but admits that the taxes remain unpaid.

For a Second, Separate and Affirmative Defense,
Defendant Alleges as Follows:

I.

Defendant alleges that the complaint is barred
by the statute of limitations.

II.

The time within which the complainant could sue
in equity under the trust fund theory was six (6)
years from and after the date the tax had been
assessed against the taxpayer, Signal Gasoline Com-
pany.

III.

The additional tax demanded in the complaint
was never assessed against the taxpayer, Signal
G-asoline Company.

IV.

The time for bringing suit against alleged trans-
ferees of the assets of Signal Gasoline Company
expired on March 15, 1930, and May 13, 1931, with
respect to the taxes of Signal Gasoline Company
for 1923 and 1924, respectively. [15]

V.

The complaint was filed on September 9, 1938,
and is barred by the statute of limitations.

20 Signal Oil and Gas Co.

For a Third, Separate and Affirmative Defense,

Defendant Alleges as Follows:

I.

That the complaint is barred by the statute of
limitations.

II.

That the period within which the complainant
could bring suit against an alleged transferee of
the assets of Signal Gasoline Company was six (6)
years from and after the dates of the assessment
of the additional tax against Signal Gasoline Com-
pany, or from the dates of the filing of the returns.
No assessment of the additional tax was made
against Signal Gasoline Company and the returns
were filed on March 15, 1924, and May 13, 1925,
respectively, for the years 1923 and 1924, and the
time for suing alleged transferees expired on
March 15, 1930, and May 13, 1931, respectively.

III.

That the purported assessment against Signal
Gasoline Corporation for the taxes of Signal Gaso-
line Company for 1923 and 1924 allegedly made on
September 10, 1932, does not start a new six-year
period in which to sue an alleged transferee, as the
purported assessment made on Signal Gasoline Cor-
poration was absolutely null and void, as that cor-
poration had been dissolved on December 12, 1928,
and was not in existence at the date of the alleged
assessment. [16]

vs. United States of America 21

IV.

The complaint herein was filed on September 9,
1938, and the period for filing the same having
expired on March 15, 1930, and May 13, 1931, re-
spectively, for the taxes for the years 1923 and
1924, the complaint herein is barred by the statute
of limitations.

Wherefore, defendant prays that complainant
take nothing by its complaint, and that defendant
be allowed its costs of suit herein.

JOSEPH D. PEELER,
MELVIN D. WILSON,
Attorneys for Defendant, Signal Oil
and Gas Company.
[Verified]

[Endorsed] : Filed Sep. 30-1938. [17]

[Title of District Court and Cause— No. 1461-RJ,]

ANSWER

To the Honorable Judges of the District Court of
the United States, for the Southern District
of California:
That defendant, Signal Oil and Gas Company,
answering the bill of complaint on file herein, de-
nies, admits and alleges as follows:

I.

Defendant admits the allegations contained in
Paragraph I of the complaint.

22 Signal Oil and Gas Co.

II.

Defendant admits the allegations contained in
Paragraph II of the complaint.

III.

Defendant has no information or belief as to the
matters alleged in Paragraph III of the complaint,
and, upon such lack of information or belief, denies
the allegations contained in Paragraph III of the
complaint. [18]

IV.

Defendant admits the allegations contained in
Paragraph IV of the complaint.

V.

Defendant admits that Signal Gasoline Company,
Incorporated, a corporation now dissolved, was or-
ganized under the laws of the State of California
on December 30, 1924, and defendant denies the
other allegations contained in Paragraph V of the
complaint.

VI.

Defendant denies the allegations contained in
Paragraph VI of the complaint.

VII.

Defendant denies the allegations contained in
Paragraph VII of the complaint.

VIII.

Defendant denies the allegations contained in
paragraph XIII of the complaint.

vs. United States of America 23

IX.

Defendant admits that Signal Gasoline Corpora-
tion was dissolved by court order on December 12,
1928, and denies all of the other allegations con-
tained in Paragraph IX of the complaint.

X.

Defendant admits the allegations contained in
Paragraph X of the complaint. [19]

XL

Defendant denies the allegation contained in
Paragraph XI of the complaint.

XII.

Defendant denies the allegations contained in the
first sentence of Paragraph XII of the complaint,
on the ground that Signal Gasoline Corporation was
dissolved on December 12, 1928.

XIII.

Defendant denies the allegations contained in
Paragraph XIII of the complaint on the ground
that Signal Gasoline Corporation was dissolved on
December 12, 1928.

XIV.

Defendant admits that no further appeal was
taken with respect to the deficiency asserted for the
year 1924, and denies the other allegations con-
tained in Paragraph XIV of the complaint on the
ground that Signal Gasoline Corporation was dis-
solved on December 12, 1928.

24 Signal Oil and Gas Co.

XV.

Defendant admits the allegations contained in
Paragraph XV of the complaint,

XVI.

Defendant denies the allegations contained in
Paragraph XVI of the complaint.

XVII.

Defendant denies the allegations contained in
Paragraph XVII of the complaint. [20]

XVIII.

Defendant denies that demand for the payment
of said tax, with interest, has been made upon
Signal Oil and Gas Company. Defendant admits
that the taxes remain unpaid.

For a Second, Separate and Affirmative Defense,
Defendant Alleges as Follows:
I.
Defendant alleges that the complaint is barred
by the statute of limitations.

II.

The time within which the complainant could sue
in equity under the trust fund theory was six (6)
years from and after the date the tax had been
assessed against the taxpayer, Signal Gasoline Cor-
poration.

vs. United States of America 25

III.

The additional tax demanded in the complaint
was never assessed against the taxpayer, Signal
Gasoline Corporation, as said corporation was dis-
solved on December 12, 1928, and the alleged assess-
ment was not purported to have been made until
October 1, 1932, and since there was no Signal
Gasoline Corporation then in existence, the alleged
assessment was void.

IV.

The time for bringing suit against the alleged
transferees of the assets of Signal Gasoline Cor-
poration with respect to the taxes of Signal Gaso^-
line Corporation for the year 1924, expired on
May 13, 1931, which was six (6) years after the
return was filed. [21]

V.

The complaint herein was filed on September 9,
1938, and is barred by the statute of limitations.

Wherefore, defendant prays that the complainant
take nothing by its complaint on file herein, and
that defendant be allowed its costs of suit herein.
JOSEPH D. PEELER,
MELVIN D. WILSON,
Attorneys for Defendant Signal Oil
and Gas Company.
[Verified]
[Endorsed]: Filed Sep. 30-1938. [22]

26 Signal Oil and Gas Co.

[Title of District Court and Cause— No. 1461-RJ.]

ORDER TRANSFERRING CASE PURSUANT
TO RULE 19

Good cause appearing therefor, It Is Hereby Or-
dered : That the above-entitled cause be transferred
to the Calendar of Judge Yankwich for further pro-
ceedings herein.
Los Angeles, California, February 8, 1939.

RALPH E. JENNEY

Judge
LEON R. YANKWICH

Judge

[Endorsed] : Filed Feb. 17, 1939. [23]

[Title of District Court and Cause — No. Eq.
1460-Y.]

STIPULATION.

It Is Hereby Stipulated, by and between the par-
ties hereto, through their respective counsel that
this cause may be tried upon the allegations con-
tained in the complaint, and admitted in the answer,
and upon the facts stated in this stipulation, and
upon such further evidence as either party may
introduce at the trial not contradictory thereto.

I.

That this is a suit in equity by the United States
of America of a civil nature, arising under the laws

vs. United States of America 27

of the United States providing for internal revenue
and the collection thereof, brought at the direction
of the Attorney General and begun and prosecuted
with the sanction and at the request of the Com-
missioner of Internal Revenue to obtain relief of
the defendant; and that the plaintiff has no clear,
adequate or complete remedy at law.

II.

That pursuant to an agreement between the Sig-
nal Gasoline Company and the Signal Gasoline Cor-
poration dated May 1, 1924, all the assets and lia-
bilities of the Signal Gasoline Company were turned
over to the Signal Gasoline Corporation for 400,000
shares of stock of the Signal Gasoline Corporation,
and on September 11, 1924, [24] the Signal Gaso-
line Company was dissolved; the 400,000 shares re-
ceived by the Signal Gasoline Company in exchange
for its assets and liabilities were distributed to its
stockholders; that accompanying this stipulation is
a true copy of said Agreement winch will be of-
fered into evidence and, with leave of Court, marked
"Plaintiff's Exhibit A", and filed herewith.

III.

That at all times herein mentioned the Signal
Gasoline Company, Inc., a corporation now dis-
solved, was prior to its dissolution a holding com-
pany for the stock of the Signal Gasoline Corpora-
tion.

28 Signal Oil and Gas Co,

IV.

That on July 31, 1928, the Signal Gasoline Com-
pany, Incorporated, owned 419,500 shares of the
stock of the Signal Gasoline Corporation, which
was 93.22% of the outstanding 450,005 shares of the
Signal Gasoline Corporation; the balance of 30,505
shares of the stock outstanding of the Signal Gaso-
line Corporation (4.23%) was owned by individual
stockholders of the Signal Gasoline Company, In-
corporated.

V.

That on August 1, 1928, the defendant, Signal
Oil and Gas Company, acquired all the assets of the
Signal Gasoline Company, Incorporated, which, as
noted above, included 93.22% of the stock of the
Signal Gasoline Corporation, in exchange for stock
of the Signal Oil and Gas Company.

VI.

That on or about November 30, 1928, the defend-
ant, Signal Oil and Gas Company, acquired the re-
maining 4.23% of the outstanding stock of the Sig-
nal Gasoline Corporation [25] from the individual
stockholders by exchange for stock of the Signal
Oil and Gas Company.

VII.

That the Signal Gasoline Corporation was liqui-
dated as of December 1, 1928, and all its assets and
liabilities distributed, as set forth in the stipulation
in United States v. Signal Oil & Gas Co., No. Equity
1461-Y.

vs. United States of America 29

VIII.

That accompanying this stipulation are true
copies of the corporation income tax returns of the
Signal Gasoline Company for the calendar year

1923, the amended return of the said company for
the same year, the tentative return for the year

1924, and the final return for the year 1924, which
will be offered into evidence by plaintiff and with
leave of Court marked " Plaintiff's Exhibits B, C.
D, and E, respectively, and filed herein.

IX.

That on October 2, 1928, and on December 28,
1929, the Commissioner of Internal Revenue ad-
dressed and mailed a letter to the Signal Gasoline
Corporation setting forth certain transferee defi-
ciencies; that true and certified photostatic copies
of said letters accompany this stipulation which will
be offered into evidence by plaintiff and with leave
'of Court marked " Plaintiff's Exhibits F and G",
respectively, and filed herein.

X.

That thereafter petitions in the name of the Sig-
nal Gasoline Corporation were filed with the Board
of Tax Appeals for a redetermination of the de-
ficiencies so proposed; that said proceedings were
docketed under Numbers 41532 and 47620, and on
February 16, 1932, the Board of Tax Appeals pur-
ported to affirm the ruling of the [26] Commissioner
in an opinion reported in 25 B. T. A. 532; that ac-

30 Signal Oil and Gas Co.

companying this stipulation are true and certified
copies of the petitions and decisions in Board
Docket No. 41532, and Board Docket No. 47620
which will be offered into evidence by plaintiff and
with leave of Court marked " Plaintiff's Exhibits
H and I", respectively, and filed herein.

XI.

That on September 10, 1932, the Commissioner
of Internal Revenue purported to assess the Signal
Gasoline Corporation as a transferee for the year
1923 a tax of $468.33, plus interest of $227.96; and
for the period ended September 11, 1924, a tax of
$2,672.53, plus interest of $1200.70; that a true cer-
tified photostatic copy of the assessment list ac-
companies this stipulation and will be offered into
evidence by plaintiff and with leave of Court
marked "Plaintiff's Exhibit J", and filed herein.

XII.

That by reason of the dissolution of the Signal
Gasoline Corporation, and the distribution of its
assets as hereinabove stated, the Signal Gasoline
Corporation was and is left without money, assets
or property of any kind with which to pay the taxes
due the United States.

XIII.

That the net assets which were acquired by the
defendant Signal Oil and Gas Company, as sole
stockholder of the Signal Gasoline Corporation, as
heretofore shown, were far in excess of the amount

vs. United States of America 31

of the above mentioned taxes with interest for the
year 1923, and for the period ended September 11,
1924, and in excess of the amount for which recov-
ery is sought herein. [27]

XIV.

That due demand for the payment of said taxes,
with interest, has been made upon the Signal Oil
and Gas Company.

XV.

That in the proceedings before the Board of Tax
Appeals in Docket Numbers 41532 and 47620, no
substitution of parties was ever made, and no mo-
tion for such substitution was ever made by either
of the parties.

XVI.

That no assessment was ever made against the
Signal Oil and Gas Company for the said 1923 and
1924 tax liabilities of the Signal Gasoline Company ;
that no assessment was ever made against the Sig-
nal Gasoline Company for the said 1924 tax liability
of the Signal Gasoline Company; but that an as-
sessment against the Signal Gasoline Company was
made on July 3, 1931, in the amount of $468.33, plus
interest for its said tax liability for the calendar
year 1923.

XVII.

That accompanying this stipulation is a true and
certified photostat copy of a letter to the Commis-
sioner of Internal Revenue dated January 20, 1932,
which will be offered into evidence by the plaintiff

32 Signal Oil and Gas Co,

and with leave of Court marked " Plaintiff's Ex-
hibit K", and filed herein.

XVIII.

That at all times herein considered substantially
the same persons were Officers and Directors or
statutory trustees of the Signal Gasoline Corpora-
tion as were the Officers and Directors of Signal
Oil and Gas Company and Officers and Directors of
the Signal Gasoline Company, Incorporated.

XIX.

That it is the intent of the parties hereto that
[28] all of the documents and exhibits herein re-
ferred to shall be considered as true copies thereof,
that all the signatures thereon are true, that each
of the documents shall speak for itself in its legal
effect, and that all of the acts of the agents whose
names appear on said documents were authorized;
save and except, however, that nothing herein shall
prevent the defendant from attacking the validity
or authority of any of the acts or documents here-
in referred to, by way of objections to the admissi-
bility of evidence offered at the trial or otherwise,
on the grounds that the respective corporate enti-
ties were not in existence at the time of the per-
formance of said acts or the execution of said docu-
ments, or otherwise.

XX.

That all of the facts, admitted in the pleadings
or set forth in the stipulation or found in the ex-

vs. United States of America 33

hibits offered, in the case of United States vs. Sig-
nal Oil and Gas Company, No. Equity 1461- Y, shall
apply herein with the same force and effect and sub-
ject to the same objections and reservations, as if
pleaded, admitted or proven herein.

Dated: January 16, 1940.

BEN HARBISON,
U. S. Attorney,
E. H. MITCHELL,
Asst. U. S. Attorney
AEMOND MONROE JEWELL,
Asst. U. S. Attorney,
By AEMOND MONROE JEWELL,
Attorneys for Plaintiff.

JOSEPH D. PEELER,
MELVIN D. WILSON,
BY MELVIN D. WILSON,

Attorneys for Defendant.

[Endorsed] : Filed Jan. 16, 1940. [29]

[Title of District Court and Cause — No. Eq.
1461-Y.]

STIPULATION

It Is Hereby Stipulated and Agreed by and be-
tween the parties hereto, through their respective
counsel, that this cause may be tried upon the alle-
gations contained in the complaint and admitted in
the answer, upon the facts stated in this stipulation,

34 Signal Oil and Gas Co.

and upon such further evidence as either party may
introduce at the trial not contradictory thereto.

I.

That this is a suit in equity by the United States
of America of a civil nature arising under the laws
of the United States providing for internal revenue
and the collection thereof, brought at the direction
of the Attorney General and begun and prosecuted
with the sanction and at the request of the Com-
missioner of Internal Revenue to obtain relief of
the defendant; and that the plaintiff has no clear,
adequate, or complete remedy at law.

II.

That at all times herein mentioned the Signal
Gasoline Company, Incorporated, a corporation now
dissolved, was prior to its dissolution a holding
company for the stock of the Signal Gasoline Cor-
poration.

III.

That on July 31, 1928, the Signal Gasoline Com-
pany, [30] Incorporated, owned 419,500 shares of
the stock of the Signal Gasoline Corporation, which
was 93.22% of the outstanding 450,005 shares of the
Signal Gasoline Corporation; the balance of 30,505
shares of the Signal Gasoline Corporation (4.23%)
was owned by individual stockholders of the Signal
Gasoline Company, Incorporated.

IV.

That on August 1, 1928, the defendant, Signal
Oil and Gas Company, acquired all the assets of

vs. United States of America 35

the Signal Gasoline Company, Incorporated, which,
as noted above, included 93.22% of the stock of the
Signal Gasoline Corporation, in exchange for stock
of the Signal Oil and Gas Company.

V.

That on or about November 30, 1928, the defend-
ant, Signal Oil and Gas Company, acquired the re-
maining 4.23% of the outstanding stock of the Sig-
nal Gasoline Corporation from the individual stock-
holders of the Signal Gasoline Company, Incor-
porated, by exchange for stock of the Signal Oil
and Gas Company.

VI.

That the Signal Gasoline Corporation was liqui-
dated as of December 1, 1928, and all of its assets
and liabilities were assigned in accordance with a
certain instrument of conveyance and the Decree
of Dissolution of the Superior Court, true copies
of which accompany this stipulation and will be of-
fered into evidence by plaintiff and with leave of
the Court marked " Plaintiff's Exhibits 1 and 2",
and filed herein.

VII.

That accompanying this stipulation is a true copy
of the income tax return of the Signal Gasoline
Corporation [31] for the calendar year 1924, which
will be offered into evidence and with leave of Court
marked "Plaintiff's Exhibit 3", and filed herein.

36 Signal Oil and Gas Co.

VIII.

That on December 3, 1928, the Signal Gasoline
Corporation signed and filed Form 872, which is
entitled "Consent Fixing Period of Limitation upon
Assessment of Income and Profits Tax"; that a
true and certified photostatic copy of said form
accompanies this stipulation, which will be offered
into evidence by plaintiff and with leave of Court
marked "Plaintiff's Exhibit 4", and filed herein.

IX.

That on December 28, 1929, the Commissioner of
Internal Revenue addressed and mailed a letter to
the Signal Gasoline Corporation, a true and certified
photostatic copy of which accompanies this stipu-
lation, and which will be offered into evidence by
plaintiff and with leave of Court marked "Plain-
tiff's Exhibit 5", and filed herein.

X.

That accompanying this stipulation are true and
certified photostatic copies of powers of attorney
dated November 21, 1928 and November 21, 1929
in the name of Signal Gasoline Corporation; that
these will be offered into evidence by plaintiff and
with leave of Court marked respectively "Plain-
tiff's Exhibits 6 and 7", and filed herein.

XI.

That on or about February 24, 1930, a petition
was filed with the Board of Tax Appeals for a re-
determination of the deficiencies proposed in Plain-

vs. United States of America 37

tiff's Exhibit 5 above referred to; that said pro-
ceeding was given [32] Docket No. 47621; that a
true copy of said petition accompanies this stipu-
lation and will be offered into evidence by plaintiff
and with leave of Court marked " Plaintiff's Ex-
hibit 8", and filed herein; that by an order entered
on March 15, 1932, the Board of Tax Appeals pur-
ported to determine that the asserted deficiencies
were correct; and that said opinion of the Board
of Tax Appeals is reported in 25 B. T. A. 861.

XII.

That on October 1, 1932, the Commissioner of
Internal Revenue purported to assess the Signal
Gasoline Corporation for the year 1924, a tax of
$14,137.05, plus interest of $6,080.77; that a true
and certified photostatic copy of the assessment
accompanies this stipulation, which will be offered
into evidence by plaintiff and with leave of Court
marked " Plaintiff's Exhibit 9", and filed herein.

XIII.

That by reason of the dissolution of the Signal
Gasoline Corporation and the distribution of all of
its assets as above set forth, the Signal Gasoline
Corporation wras and is left without money, assets,
or property of any kind with which to pay the said
tax and interest due to the United States.

XIV.

That the net assets which were acquired by the
defendant Signal Oil and Gas Company, as sole

38 Signal Oil and Gas Co.

stockholder of the Signal Gasoline Corporation, as
heretofore shown, were far in excess of the above
mentioned tax with interest for the year 1924, and
in excess of the amount for which recovery is sought
herein. [33]

XV.
That due demand for the payment of said tax
with interest has been made upon the Signal Oil
and Gas Company.

XVI.

That accompanying this stipulation are true
copies of the following, which will be offered into
evidence by plaintiff and, with leave of Court,
marked as Plaintiff's Exhibits and filed as follows:

(a) Letter from F. O. Graves to the Com-
missioner of Internal Revenue, dated December 3,
1928— "Plaintiff's Exhibit 10";

(b) Protest purportedly from the Signal Gaso-
line Corporation to the Internal Revenue Agent in
Charge, dated November 20, 1929— " Plaintiff 's Ex-
hibit 11";

(c) Letter to the Commissioner of Internal
Revenue in the name of the Signal Gasoline Cor-
poration, Los Angeles, California, dated January
20, 1932— "Plaintiff's Exhibit 12";

(d) Letter to the Commissioner of Internal
Revenue in the name of the Signal Gasoline Com-
pany, Incorporated, dated January 20, 1932 —
"Plaintiff's Exhibit 13";

(e) Sixty day letter, dated March 30, 1931, to
the Signal Gasoline Corporation from the Commis-

vs. United States of America 39

sioner of Internal Revenue with certain applicable
portions of the statement therein attached — " Plain-
tiff's Exhibit 14";

(f) Applicable portions of revenue agent's re-
port, dated as of August 26, 1930— " Plaintiff's Ex-
hibit 15";

(g) Letter to Collector of Internal Revenue
at Los Angeles, dated July 27, 1931, signed by J.
H. Kounsavell— " Plaintiff's Exhibit 16";

(h) Offers in compromise in the name of Sig-
nal Gasoline Corporation under the respective dates
of October [34] 21, 1932, and January 23, 1933—
" Plaintiff's Exhibits 17 and 18";

(i) Income tax return of the Signal Gasoline
Company, Incorporated, and Subsidiaries for the
period of January 1 to July 31, 1928— " Plaintiff 's
Exhibit 19";

(j) Corporation income tax return of the Signal
Oil and Gas Company, and Subsidiaries for the
period ended December 31, 1928 — ' ' Plaintiff 's Ex-
hibit 20"; and

(k) Petition accompanying application of the
Signal Oil and Gas Company to issue stock, filed
July 23, 1928, and application filed October 6, 1928
—"Plaintiff's Exhibit 21".

XVII.

That in the proceedings before the Board of Tax
Appeals in Docket Number 47621, no substitution
of parties was ever made, and no motion for such
substitution was ever made by either of the parties.

40 Signal Oil and Gas Co.

XVIII.

That at all times herein considered substantially
the same persons were Officers and Directors or
statutory trustees of the Signal Gasoline Corpora-
tion as were the Officers and Directors of Signal
Oil and Gas Company and Officers and Directors
of Signal Gasoline Company, Incorporated.

XIX.

That it is the intent of the parties hereto that all
of the documents and exhibits herein referred to
shall be considered as true copies thereof, that all
the signatures thereon are true, that each of the
documents shall speak for itself in its legal effect,
and that all of the acts of the agents whose names
appear on said documents were authorized ; save and
except, however, that nothing herein shall prevent
the defendant from attacking [35] the validity or
authority of any of the acts or documents herein
referred to, by way of objections to the admissi-
bility of evidence offered at the trial or otherwise,
on the grounds that the respective corporate enti-
ties were not in existence at the time of the perform-
ance of said acts or the execution of said docu-
ments, or otherwise.

XX.

That all of the facts, admitted in the pleadings
or set forth in the stipulation, or found in the ex-
hibits offered, in the case of United States vs. Sig-
nal Oil and Gas Company, No. Equity 1460- Y, shall
apply herein with the same force and effect and

vs. United States of America 41

subject to the same objections and reservations, as
if pleaded, admitted or proven herein.

Dated: January 16, 1940.

BEN HARRISON,
U. S. Attorney,
E. H. MITCHELL,
Asst. U. S. Attorney,
ARMOND MONROE JEWELL,
Asst. U. S. Attorney,
By ARMOND MONROE JEWELL
Attorneys for Plaintiff.

JOSEPH D. PEELER
MELVIN D. WILSON
By MELVIN D. WILSON

Attorneys for Defendant.

[Endorsed] : Filed Jan. 16, 1940. [36]

At a stated term, to wit: The September Term,
A. D. 1939 of the District Court of the United States
of America, within and for the Central Division of
the Southern District of California, held at the
Court Room thereof, in the City of Los Angeles
on Tuesday the 16th day of January in the year of
our Lord one thousand nine hundred and forty.

42 Signal Oil and Gas Co.

Present :

The Honorable: Leon R. Yankwich, District
Judge.

[Title of Cause— No. 1460- Y Equity.]
[Title of Cause— No. 1461-Y Equity.]

These causes coming on for trial; A. M. Jewell,
Assistant U. S. Attorney, appearing as counsel for
the Government; Melvin D. Wilson, Esq., appear-
ing as counsel for the defendant; and Arthur Ed-
wards, court reporter, being present :

It is ordered that these causes be consolidated.

Attorney Wilson makes opening statement in be-
half of the defendant.

Pursuant to stipulation, amended and supplemen-
tal answer in Case No. 1461 is ordered filed, and

stipulation of facts is ordered filed in each case.
*******

Stipulation is entered into by counsel re assess-
ments. Both sides rest.

It is ordered that these consolidated causes be
submitted on briefs to be filed 30 x 60 x 15. [37]

[Title of District Court and Cause.— No. 1461-RJ.]

AMENDED AND SUPPLEMENTAL ANSWER

To the Honorable Judges of the District Court of
the United States, for the Southern District of
California :
The defendant, Signal Oil and Gas Company, hav-
ing obtained permission of the Court therefor,

vs. United States of America 43

makes this amended and supplemental answer to
the bill of complaint on file herein and, in so do-
ing, denies, admits and alleges as follows:

I.

Defendant adopts, repeats and incorporates here-
in by reference Paragraphs I to XVIII of its orig-
inal answer on file herein, as its first defense.

II.

Defendant adopts, repeats and incorporates
herein by reference Paragraphs I to V of its sec-
ond, separate and affirmative defense set out in
its original answer on file herein, as its second
defense in this amended and supplemental answer.

[38]

For a Third, Separate and Affirmative Defense,
Defendant Alleges as Follows :
I.
Defendant alleges that the bill of complaint is
barred by the statute of limitations.

II.

That the time for bringing suit against the al-
leged transferees of the assets of Signal Gasoline
Corporation with respect to taxes of Signal Gasoline
Corporation for the year 1924, was six years from
the time the return was filed, namely six years from
May 13, 1925, or six years from the time the tax
was validly assessed against the taxpayer, Signal
Gasoline Corporation.

44 Signal Oil and Gas Go.

III.

Signal Gasoline Corporation, having been dis-
solved in December of 1928, and the purported
assessment not having been made until October
1, 1932, it was invalid and null and void as to
Signal Gasoline Corporation.

IV.

If the assessment made on October 1, 1932, was
valid, it must of necessity have been made against
the trustee of the dissolved Signal Gasoline Cor-
poration, who, upon dissolution, received its as-
sets for the purpose of paying its debts and col-
lecting its accounts. Such trustees constitute the
first transferees of the assets of Signal Gasoline
Corporation, but a valid assessment against them
would not give the plaintiff six years within which
to sue subsequent transferees of the assets of Sig-
nal Gasoline Corporation. [39]

V.

The suit herein, not having been brought by
May 13, 1931, was barred by the statute of limita-
tions.

Wherefore, defendant prays that plaintiff take
nothing by its complaint on file herein, and that
the defendant be allowed its costs of suit herein.
JOSEPH D. PEELER,
MELVIN D. WILSON,
Attorneys for Defendant Signal Oil and Gas Com-
pany.

(Verified)

[Endorsed]: Filed Jan. 16, 1940. [40]

vs. United States of America 45

[Title of District Court and Cause.— No. 1460-Y.]
MINUTE ORDER

This cause having been heard upon the issues
raised by the Complaint and the Answer, and a
stipulation of facts and evidence, oral and docu-
mentary, having been introduced, and the cause
having been submitted to the Court for decision,
and the Court having considered the evidence and
the law and the arguments and briefs of counsel,
now finds in favor of the plaintiffs and orders that
the plaintiff do have and recover of the defend-
ant in the sum of $4,569.52, with interest thereon
from September 10, 1932.

As a guide to counsel in the preparation of find-
ings, the Court states the following conclusions
upon the issues raised in this and the companion
case this day decided also. (1461-Y)

The Court is of the view that under the author-
ity of McPherson vs. Commissioner of Internal
Revenue, 9 Cir., 1932, 54 F(2) 751, the deficiency
assessment was in all respects valid. The deficiency
assessment against the Signal Gasoline Corpora-
tion was not an assessment against its directors as
transferees of the assets. It was an assessment against
it for tax liability incurred during its corporate
existence. This being the case, the defendants are
not in a position to invoke the doctrine of United
States vs. Continental National Bank and Trust
[41] Company, 1939, 305 U. S. 398. In other words,
the Court is of the view that we are not dealing

46 Signal Oil and Gas Co,

here with the transferee of a transferee and that
the actions in this and the companion case were
timely and are not barred by the Statute of Limi-
tations.

Findings and judgment to be prepared by coun-
sel for the plaintiff under Local Rule 8.

Dated this 27th day of July, 1940.
Counsel notified. [42]

[Title of District Court and Cause.— No. 1461-Y.]
MINUTE ORDER

This cause having been heard upon the issues
raised by the Complaint and the Answer, and a
stipulation of facts and evidence, oral and docu-
mentary, having been introduced, and the cause
having been submitted to the Court for decision,
and the Court having considered the evidence and
the law and the arguments and briefs of counsel,
now finds in favor of the plaintiffs and orders that
the plaintiff do have and recover of the defendant
in the sum of $20,217.82, with interest thereon from
September 10, 1932.

As a guide to counsel in the preparation of find-
ings, the Court states the following conclusions
upon the issues raised in this and the companion
case this day decided also. (1460-Y)

The Court is of the view that under the author-
ity of McPherson vs. Commissioner of Internal
Revenue, 9 Cir., 1932, 54 P(2) 751, the deficiency

vs. United States of America 47

assessment was in all respects valid. The deficiency
assessment against the Signal Gasoline Corpora-
tion was not an assessment against its directors as
transferees of the assets. It was an assessment against
it for tax liability incurred during its corporate
existence. This being the case, the defendants are
not in a position to invoke the doctrine of United
States vs. Continental National Bank and Trust
Company, 1939, 305 IT. S. 398. In other [43] words,
the Court is of the view that we are not dealing
here with the transferee of a transferee and that
the actions in this and the companion case were
timely and are not barred by the Statute of Limita-
tions.

Findings and judgment to be prepared by coun-
sel for the plaintiff under Local Rule 8.

Dated this 27th day of July, 1940.
Counsel notified. [44]

48 Signal Oil and Gas Co.

In the District Court of the United States in and
for the Southern District of California, Cen-
tral Division.

No. Eq. 1460-Y

UNITED STATES OF AMERICA,

Plaintiff.

vs.

SIGNAL OIL AND GAS COMPANY,

Defendant.

No. Eq. 1461- Y

UNITED STATES OF AMERICA,

Plaintiff,

vs.

SIGNAL OIL AND GAS COMPANY,

Defendant.

FINDINGS OF FACT AND CONCLUSIONS

OF LAW

The above entitled cases having come on for trial
on the 16th day of January, 1940, before the Hon-
orable Leon R. Yankwich, United States District
Judge, sitting without a jury, plaintiff being rep-
resented by the United States Attorney, and Ed-
ward H. Mitchell, Assistant United States Attor-
ney, by Armond Monroe Jewell, Assistant United
States Attorney, and defendant being represented
by Joseph D. Peeler, Esq., and Melvin D. Wilson,
Esq., by Melvin D. Wilson, Esq., and a stipulation

vs. United States of America 49

of facts having been filed and the court having
ordered the consolidation of the above entitled
cases for the purpose of trial, and documentary
evidence having been offered on behalf of the
plaintiff, the court now makes its Findings of
Pact and Conclusions of Law:

FINDINGS OF FACT

I.

That these are suits in equity by the United
States of America of a civil nature arising under
the laws of the United States providing for in-
ternal revenue and the collection thereof, brought
on [45] September 9, 1938, at the direction of the
Attorney General and begun and prosecuted with
the sanction and at the request of the Commissioner
of Internal Revenue to obtain relief of the de-
fendant; and that the plaintiff has no clear, ade-
quate, or complete remedy at law.

II.

That pursuant to and in accordance with an
agreement between the Signal Gasoline Company,
a California corporation, and the Signal Gaso-
line Corporation, a California corporation, dated
May 1, 1924, all the assets of the Signal Gasoline
Company were turned over to the Signal Gasoline
Corporation for 400,000 shares of stock of the Sig-
nal Gasoline Corporation, and on September 11,
1924, the Signal Gasoline Company was dissolved;
the 400,000 shares received by the Signal Gasoline

50 Signal Oil and Gas Co.

Company in exchange for its assets and liabilities
were distributed to its stockholders; that "Plain-
tiff's Exhibit A" is a true copy of the said agree-
ment.

III.

That at all times herein mentioned the Signal
Gasoline Company, Incorporated, a corporation now
dissolved, was prior to its dissolution a holding
compajry for the stock of the Signal Gasoline Cor-
poration.

IV.

That on July 31, 1928, the Signal Gasoline Com-
pany, Incorporated, owned 419,500 shares of the
stock of the Signal Gasoline Corporation, which
was 93.22% of the outstanding 450,005 shares of
the Signal Gasoline Corporation; the balance of
30,505 shares of the stock outstanding of the Sig-
nal Gasoline Corporation (4.23%) was owned by
individual stockholders of the Signal Gasoline Com-
pany, Incorporated.

V.

That on August 1, 1928, the defendant, Signal
Oil and Gas Company, acquired all the assets of
the Signal Gasoline Company, Incorporated, which,
as noted above, included 93.22% of the stock of
the Signal Gasoline Corporation, in exchange for
stock of the Signal [46] Oil and Gas Company.

VI.

That on or about November 30, 1928, the de-
fendant, Signal Oil and Gas Company, acquired

vs. United States of America 51

the remaining 4.23% of the outstanding stock of
the Signal Gasoline Corporation from the indi-
vidual stockholders of the Signal Gasoline Com-
pany, Incorporated, by exchange for stock of the
Signal Oil and Gas Company.

VII.

That the Signal Gasoline Corporation was liqui-
dated as of December 1, 1928, and all of its assets
and liabilities were assigned in accordance with a
certain instrument of conveyance and the Decree
of Dissolution of the Superior Court; that plain-
tiff's Exhibits 1 and 2, respectively, are true copies
of the said instrument of conveyance and the De-
cree of Dissolution.

VIII.

That plaintiff's Exhibit B is a true copy of the
corporation income tax return of the Signal Gaso-
line Company for the calendar year 1923 ; that plain-
tiff 's Exhibit C is a true copy of the amended cor-
poration income tax return of the Signal Gasoline
Company for the calendar year 1923; that plain-
tiff's Exhibit D is a true copy of the tentative cor-
poration income tax return of the Signal Gasoline
Company for the year 1924; that plaintiff's Exhibit
E is a true copy of the final corporation income
tax return of the Signal Gasoline Company for
the calendar year 1924, all of which returns were
duly filed by or on behalf of the Signal Gasoline
Company, on March 15, 1924, May 13, 1925, March
16, 1925 and May 13, 1925, respectively.

52 Signal Oil and Gas Co.

IX.

That on October 2, 1928, and again on December
28, 1929, the Commissioner of Internal Eevenue
duly addressed and mailed a letter to the Signal
^"Gasoline Corporation setting forth certain trans-
feree deficiencies; that said letters, and each of
them were duly received by or on behalf of the
Signal Gasoline Corporation; that plaintiff's [47]
Exhibit P is a true copy of the letter dated October
2, 1928; that plaintiff's Exhibit G is a true copy
of the letter dated December 28, 1929.

X.

That thereafter petitions in the name of the Sig-
nal Gasoline Corporation were filed by the Sig-
nal Gasoline Corporation with the Board of Tax
Appeals for a redetermination of the deficiencies
proposed in the said letters dated October 2, 1928,
and December 28, 1929; that the appeal from the
deficiencies proposed in the letter of October 2,
1928, was, on November 19, 1928, docketed with
the Board of Tax Appeals under Number 41532;
that the appeal from the deficiencies proposed in
the letter of December 28, 1929, was on February
24, 1930 docketed with the Board of Tax Appeals
under Number 47620; that the petition was signed
by six persons and stated that they were the statu-
tory trustees of Signal Gasoline Corporation, a
dissolved corporation, acting through its statutory
trustees; that on February 16, 1932, the Board of
Tax Appeals duly affirmed the ruling of the Com-
missioner of Internal Revenue in asserting the

vs. United States of America 53

deficiencies therein appealed from; that said de-
cision of the Board of Tax Appeals is contained
in an opinion reported in 25 Board of Tax Appeals
532; that plaintiff's Exhibit H is a true and certi-
fied copy of the petition and decision in the said
Board of Tax Appeals docket No. 41532 ; that plain-
tiff's Exhibit I is a true and certified copy of the
petition and decision in Board of Tax Appeals
docket No. 47620.

XI.
That on Sieptember 10, 1932, the Commissioner
of Internal Revenue duly assessed the Signal Gaso-
line Corporation, as a transferee of the Signal
Gasoline Company, for the above described tax
liabilities of the Signal Gasoline Company in the
amounts and for the taxable periods as follows:

[48]
For the taxable year 1923— $468.33, plus in-
terest of $227.96.

For the taxable period ended, September
11, 1924— $2,672.53, plus interest of $1,200.70.

That plaintiff's Exhibit J is a true and certified
photostatic copy of the assessment lists of the Com-
missioner of Internal Revenue setting forth the
assessments herein described.

XII.

That plaintiff's Exhibit 3 is a true copy of the
income tax return filed on May 13, 1925 by the
Signal Gasoline Corporation for the calendar year
1924.

54 Signal Oil and Gas Co.

XIII.

That on December 3, 1928, the Signal Gasoline
Corporation signed and filed Form 872, which is
entitled " Consent Fixing Period of Limitation
upon Assessment of Income and Profits Tax", there-
by extending the statute of limitations for the as-
sessment of deficiencies on account of the Signal
Gasoline Corporation's tax liability for the calen-
dar year 1924; that plaintiffs' Exhibit 4 is a true
copy of the said form.

XIV.

That on December 28, 1929 the Commissioner
of Internal Revenue duly addressed and mailed
a letter to the Signal Gasoline Corporation; that
this letter proposed an assessment of additional
tax liabilities against the Signal Gasoline Corpora-
tion on account of a deficiency for the calendar
year 1924; that the said letter also proposed an
assessment of other additional tax liabilities for
the calendar years 1925 and 1926; that plaintiff's
Exhibit 5 is a true copy of the said letter.

XV.

That under date of November 21, 1928 the Sig-
nal Gasoline Corporation executed a power of at-
torney to certain attorneys authorizing the said
attorneys to represent the Signal Gasoline Corpo-
ration before [49] the Treasury Department of the
United States and the United States Board of Tax
Appeals with reference to the tax liabilities of the

vs. United States of America 55

Signal Gasoline Corporation for the calendar years
1924 and 1925; that said power of attorney was
signed by S. B. Mosher and O. W. March, President
and Secretary respectively of the Signal Gasoline
Corporation; that plaintiff's Exhibit 6 is a true
copy of the said power of attorney.

XVI.

That under date of November 20, 1929 a power
of attorney was executed whereby certain attor-
neys were authorized to represent the Signal Gaso-
line Corporation before the Treasury Department
and the Board of Tax Appeals in connection with
the tax liabilities of the said corporation for the
calendar years 1926 and 1927. The said powrer of
attorney was executed in the name of the Signal
Gasoline Corporation, but stated that it was a dis-
solved corporation acting through its statutory
trustees, and was signed on the margin thereof
by each of the statutory trustees of the dissolved
Signal Gasoline Corporation; that plaintiff's Ex-
hibit 7 is a true copy of the said power of attorney.

XVII.

That on or about February 24, 1930 a petition
was filed with the Board of Tax Appeals for a re-
determination of the deficiencies proposed in plain-
tiff's Exhibit 5 above referred to; that said pro-
ceeding was therein given docket No. 47621; that
said petition was filed under the name of the Sig-
nal Gasoline Corporation. However, in the body
of the petition there was an allegation stating that

56 Signal Oil and Gas Co.

"the petitioner is a dissolved California corpora-
tion acting through its statutory trustees * * *".
The petition was verified by all of the statutory
trustees; that plaintiff's Exhibit 8 is a true copy
of the said petition to the Board of Tax Appeals;
that by an order entered on March 15, 1932 the
Board of Tax Appeals determined that the defi-
ciencies asserted therein by the Commissioner of
Internal Revenue were correct; that the opinion
of the Board of Tax Appeals regarding this matter
is reported in 25 Board of Tax Appeals 861. [50]

XVIII.

That on October 1, 1932, pursuant to the said
adjudication by the Board of Tax Appeals, referred
to in the preceding paragraph, the Commissioner
of Internal Revenue duly assessed the Signal Gaso-
line Corporation for its tax deficiency for the cal-
endar year 1924 in the principal amount of $14,-
137.05, plus interest of $6,080.77; that plaintiff's
Exhibit 9 is a true copy of the assessment list of
the Commissioner, upon which there appears the
said assessment against the Signal Gasoline Cor-
poration.

XIX.

That by reason of the dissolution of the Signal
Gasoline Corporation and the disbursement of all of
its assets to its statutory trustees, as above set
forth, the Signal Gasoline Corporation was and
is left without any money, assets or property of any
kind with which to pay the said taxes and interest
due to the United States.

vs. United States of America 57

XX.

That the assets which were acquired by the de-
fendant Signal Oil and Gas Company, as sole
stockholder of the Signal Gasoline Corporation,
as heretofore shown, were far in excess of the
taxes and interest prayed for in the Complaints
herein.

XXI.

That due demand for the payment of the taxes
and interest prayed for in the Complaints herein
has been made upon the Signal Oil and Gas Com-
pany, but no portion thereof has been paid.

XXII.

That at all times herein mentioned and con-
sidered substantially the same persons were offi-
cers and directors or statutory trustees of the Sig-
nal Gasoline Corporation as were the officers and
directors of the Signal Oil and Gas Company and
officers and directors of the Signal Gasoline Com-
pany, Incorporated. [51]

XXIII.

That in the proceedings before the Board of Tax
Appeals under docket numbers 41532, 47620 and
47621, no substitution of parties was ever made
and no motion for such substitution was ever made
by either of the parties.

XXIV.

That all of the Exhibits filed by plaintiff herein
are true copies of the originals thereof.

58 Signal Oil and Gas Co.

XXV.

That in addition to the acts heretofore described,
the statutory trustees of the Signal Gasoline Cor-
poration after its dissolution, who were those per-
sons who were the officers and directors of the de-
fendant, persisted in transacting business affairs
of the dissolved corporation in the name of the
Signal Gasoline Corporation and in particular in
the negotiations with the United States of America
regarding the tax liabilities of the Signal Gasoline
Corporation.

XXVI.

That no assessment was ever made against the
Signal Oil and Gas Company for the 1923 and
1924 tax liabilities of the Signal Gasoline Com-
pany; that no assessment was ever made against
the Signal Oil and Gas Company for the^tax lia-
bilities due from the Signal Gasoline Corporation
for the year 1924; that no assessment was ever
made against the Signal Gasoline Company for the
said 1924 tax liability of the Signal Gasoline Com-
pany; that an assessment against the Signal Gaso-
line Company was made on July 3, 1931, in the
amount of $468.33 plus interest for its said tax lia-
bility for the calendar year 1923.

XXVII.

On May 13, 1929, a corporation income tax re-
turn was filed with the Collector of Internal Reve-
nue at Los Angeles, California on behalf of the
Signal Gasoline Corporation and was signed by

vs. United States of America 59

S. B. Mosher, as President, and O. W. Marsh, as
Treasurer of the said corporation. In said return it
was stated in Affiliation Schedule No. 3 thereof that
[52] the Signal Gasoline Corporation had been
dissolved in December of 1928; that plaintiff's Ex-
hibit 20 is a true copy of the said return.

XXVIII.

In the Revenue Agent's report, dated August
26, 1930, it was stated that the Signal Gasoline
Corporation had distributed all of its assets to
its stockholders upon its dissolution in December
1928; that plaintiff's Exhibit 15 is a true copy of
those portions of the said Revenue Agent's report,
which contain those statements. In the letter, dated
March 30, 1931 from the Commissioner of Internal
Revenue and addressed to the Signal Gasoline Cor-
poration, which letter was the 60 day letter pro-
posing additional taxes for the year 1928, it was
stated that the Signal Gasoline Corporation had
been dissolved in December 1928; that plaintiff's
Exhibit 14 is a true copy of said letter.

CONCLUSIONS OF LAW

I.

That the assessments by the Commissioner of
Internal Revenue against the Signal Gasoline Cor-
poration, described in Paragraphs XI and XVIII
of the Findings of Fact herein, are correct, timely
and valid.

60 Signal Oil and Gas Co.

II.

That the said proceedings before the Board of
Tax Appeals, the said decisions of the Board of
Tax Appeals and the said assessments by the Com-
missioner of Internal Revenue are valid.

III.

That the actions herein are not barred by the
statute of limitations and, therefore, have been
timely commenced.

IV.

That the defendant is estopped from setting up
the bar of the statute of limitations to the causes
of action set forth in Complaints No. 1460-Y and
No. 1461-Y. [53]

V.

That the transfer of the assets of the Signal
Gasoline Corporation to the defendant as its sole
stockholder impressed those assets with a trust for
the benefit of the creditors of the Signal Gasoline
Corporation and for the benefit of the United
States of America in the assertion of its claim for
unpaid taxes due from the Signal Gasoline Corpora-
tion.

VI.

That plaintiff is entitled to judgment against the
defendant in the sum of $20,217.82, together with in-
terest as provided by law from October 1, 1932 and
in the sum of $4,569.52, together with interest as
provided by law from September 10, 1932.

vs. United States of America 61

Dated : This 26th day of December, 1940.
LEON R. YANKWICH,
United States District Judge.
Approved as to form as provided by Rule 8:
JOSEPH D. PEELER and
MELVIN D. WILSON.
By MELVIN D. WILSON,
Attorneys for Defendant.

[Endorsed] : Filed Dec. 26, 1940. [54]

In the District Court of the United States in and
for the Southern District of California, Cen-
tral Division.

No. Eq. 1460-Y

UNITED STATES OF AMERICA,

Plaintiff,
vs.

SIGNAL OIL AND GAS COMPANY,

Defendant.

No. Eq. 1461-Y

UNITED STATES OF AMERICA,

Plaintiff,

vs.

SIGNAL OIL AND GAS COMPANY,

Defendant.
JUDGMENT

The above entitled cases having come on for
trial on the 16th day of January, 1940, before the

62 Signal Oil and Gas Co.

Honorable Leon K. Yankwich, United States Dis-
trict Judge, sitting without a jury, plaintiff be-
ing represented by the United States Attorney, and
Edward H. Mitchell, Assistant United States At-
torney, by Armond Monroe Jewell, Assistant United
States Attorney, and defendant being represented
by Joseph D. Peeler, Esq., and Melvin D. Wilson,
Esq., by Melvin D. Wilson, Esq., and a stipulation
of facts having been filed and the court having or-
dered the consolidation of the above entitled causes
for the purpose of trial, and documentary evi-
dence having been offered on behalf of the plain-
tiff; and the Court having made its Findings of
Fact and Conclusions of Law;

Now, therefore, it is ordered, adjudged and de-
creed that plaintiff have judgment against the de-
fendant in the sum of twenty thousand two hun-
dred [55] and seventeen dollars eighty-two cents
($20,217.82) together with interest at the rate of
12% per annum from October 1, 1932 to October
24, 1933, and interest at the rate of 6% per annum
from October 24, 1933 to the date of payment;
and in the sum of four-thousand five hundred and
sixty-nine dollars fifty-two cents ($4,569.52) to-
gether with interest at the rate of 12% per an-
num from September 10, 1932 to October 24,
1933, and interest at the rate of 6% per annum
from October 24, 1933 to date of payment, to-

vs. United States of America 63

gether with costs in the sum of ($27.14) ($27.06)
dollars.

Dated: This 26th day of December, 1940.
LEON R. YANKWICH,

United States District Judge.
Approved as to form as provided by Rule 8:
JOSEPH D. PEELER and
MELVIN D. WILSON.
By MELVIN D. WILSON,
Attorneys for Defendant.
Judgment entered Dec. 26, 1940.
Docketed Dec. 26, 1940.
C. O. Book 4, Page (170) (172).

R. S. ZIMMERMAN,
Clerk.
By LOUIS J. SOMERS,
Deputy.

[Endorsed] : Filed Dec. 26, 1940. [56]

[Title of District Court and Cause — No. Eq.
1460-Y]

NOTICE OF APPEAL

Notice is hereby given that Signal Oil and Gas
Company, a corporation, defendant above named,
hereby appeals to the United States Circuit Court
of Appeals for the Ninth Circuit from that cer-
tain judgment entered in the above entitled action

64 Signal Oil and Gas Co.

on the 26th day of December, 1940, in which action
United States of America is plaintiff.

The judgment in the above case and in United
States of America vs. Signal Oil and Gas Com-
pany, No. Eq. 1461-Y, was entered as a consolidated
judgment.

Dated: March 17, 1941.

MELVIN D. WILSON,
JOSEPH D. PEELER,
Attorneys for Defendant.
Copies mailed to U. S. Atty. 3-20-41.
R. S. ZIMMERMAN,
Clerk.
By E. L. S.

[Endorsed] : Filed Mar. 20, 1941. [57]

[Title of District Court and Cause — No. Eq.
1461-Y.]

NOTICE OF APPEAL

Notice is hereby given that Signal Oil and Gas
Company, a corporation, defendant above named,
hereby appeals to the United States Circuit Court
of Appeals for the Ninth Circuit from that certain
judgment entered in the above entitled action on
the 26th day of December, 1940, in which United
States of America is plaintiff.

The judgment in the above case and in United
States of America vs. Signal Oil and Gas Com-

vs. United States of America 65

pany, No. Eq. 1460-Y, was entered as a consoli-
dated judgment.

Dated: March 17, 1941.

MELVIN D. WILSON,
JOSEPH D. PEELER,

Attorneys for Defendant.

Copies mailed to U. S. Atty. 3-20-41.
R. S. ZIMMERMAN,
Clerk.
By E. L. S.

[Endorsed]: Filed Mar. 20, 1941. [58]

[Title of District Court and Cause— Nos. 1460-Y
and 1461-Y.]

STIPULATION FOR CONSOLIDATED
RECORD ON APPEAL

It is hereby stipulated by and between the re-
spective parties hereto, through their respective
counsel, that the above entitled causes of action,
having been consolidated for the purpose of trial,
may be consolidated for the purpose of appeal and
that one record on appeal will be sufficient and sat-
isfactory for the purpose of appealing both cases.

66 Signal Oil and Gas Co.

Dated: March 19, 1941.

WM. FLEET PALMER

United States Attorney

E. H. MITCHELL

Asst. United States Attorney

ARMOND MONROE JEWELL

Asst. United States Attorney

By ARMOND MONROE JEWELL

Attorneys for Plaintiff.
MELVIN D. WILSON
JOSEPH D. PEELER

Attorneys for Defendant. [59]
It is so ordered this 20th day of March, 1941, at
4:40 P. M.

paul j. Mccormick

United States District Judge.
[Endorsed] : Piled Mar. 20, 1941. [60]

[Title of District Court and Cause— Nos. 1460^ Y
and 1461-Y.]

STIPULATION FOR ORDER EXTENDING
TIME FOR FILING RECORD ON APPEAL
AND DOCKETING THE ACTION AND
ORDER.

It is hereby stipulated by and between the re-
spective parties hereto, through their respective
counsel, that the Court may extend the time for
filing the record on appeal and docketing the action

vs. United States of America 67

in the above entitled causes, from April 26, 1941
to May 11, 1941.

Dated: April 24, 1941.

WM. FLEET PALMER

United States Attorney

E. H. MITCHELL

Asst. United States Attorney

ARMOND MONROE JEWELL

Asst. United States Attorney

By ARMOND MONROE JEWELL

Attorneys for Plaintiff.
MELVIN D. WILSON
JOSEPH D. PEELER [61]

ORDER

Upon filing the foregoing Stipulation of the par-
ties,

It Is Ordered that the appellant may have from
April 26, 1941 to May 11, 1941 within which to file
the record on appeal and docket the action in the
above entitled cases.

Apr. 24, '41, at 3:45 P. M.

PAUL J. McCORMICK

Judge.

[Endorsed] : Filed Apr. 24, 1941. [62]

68 Signal Oil and Gas Co.

[Title of District Court and Cause— Nos 1460-Y
and 1461-Y.]

STIPULATION DESIGNATING RECORD ON

APPEAL

Pursuant to Rule 75 (f) of The Federal Rules
of Civil Procedure, it is hereby stipulated by and
between the parties hereto, through their respective
counsel, that the following shall constitute the Rec-
ord on Appeal in the above entitled cases :

1. Order Transferring Case, Pursuant to Rule
19, dated February 8, 1939 (Case No. 1461
R. J.)

2. Complaint (Case No. 1460-Y)

3. Complaint (Case No. 1461-Y)

4. Answer (Case No. 1460-Y)

5. Answer (Case No. 1461-Y)

6. Stipulation (Case No. 1460-Y)

7. Stipulation (Case No. 1461-Y)

8. Minute Order of Court before Hon. Leon R.
Yankwich, Tuesday, January 16, 1940 (Cases
1460-Y and 1461-Y)

9. Amended and Supplemental Answer (Case
No. 1461-Y)

10. Minute Order (Case No. 1460-Y) [63]

11. Minute Order (Case No. 1461-Y)

12. Findings of Fact and Conclusions of Law
(Case No. 1460-Y)

13. Findings of Fact and Conclusions of Law
(Case No. 1461-Y)

14. Judgment (Cases Nos. 1460-Y and 1461-Y)

vs. United States of America 69

lb. Notice of Appeal (Case No. 1460- Y)

16. Notice of Appeal (Case No. 1461-Y)

17. Stipulation for Consolidated Record on Ap-
peal and Order attached (Cases Nos. 1460-Y
and 1461-Y)

18. Stipulation for Order Extending Time for
Filing Record on Appeal and Docketing the
Action, and Order (Cases Nos. 1460-Y and
1461-Y)

19. This Designation of Record on Appeal

20. Reporter's Transcript.

21. Plaintiff's Exhibits "A" to "K" inclusive
(Case No. 1460-Y)

22. Plaintiff's Exhibits 1 to 21 inclusive (Case
No. 1461-Y)

23. Order Permitting Original Exhibits to be
Sent to Circuit Court in lieu of Copies, on
Appeal (Cases Nos. 1460-Y and 1461-Y)

Dated this 30th day of April, 1941.
WM. FLEET PALMER
United States Attorney
E. H. MITCHELL
Asst. United States Attorney
ARMOND MONROE JEWELL
Asst. United States Attorney
By ARMOND MONROE JEWELL

(Attorneys for Plaintiff)
MELVIN D. WILSON
JOSEPH D. PEELER

Attorneys for Defendant
[Endorsed] : Filed May 1, 1941. [64]

70 Signal Oil and Gas Co.

[Title of District Court and Cause— Nos. 1460-Y
and 1461-Y.]

STIPULATION AND ORDER AS TO
ORIGINAL PAPERS OR EXHIBITS

It is hereby stipulated by and between the re-
spective parties, through their respective counsel
that the Court may order the original stipulation,
the exhibits, and reporter's transcript to the United
States Circuit Court of Appeals for the Ninth Cir-
cuit in lieu of the copies thereof, such papers to
be returned to the District Court upon the termina-
tion of the appellate proceedings.
Dated: April 30, 1941.

WM. FLEET PALMER

United States Attorney

E. H. MITCHELL

Asst. United States Attorney

ARMOND MONROE JEWELL

Asst. United States Attorney

By ARMOND MONROE JEWELL

Attorneys for Plaintiff
MELVIN D. WILSON
JOSEPH D. PEELER

Attorneys for Defendant. [65]
It Is So Ordered.

Dated: April 30, 1941.

LEON R. YANKWICH

Judge of the District Court

[Endorsed] : Filed May 1, 1941. [66~\

vs. United States of America 71

[Title of District Court and Causes.]

CERTIFICATE OF CLERK

I, R. S. Zimmerman, Clerk of the District Court
of the United States for the Southern District of
California, do hereby certify that the foregoing
pages, numbered from 1 to 66 inclusive, contain
full, true and correct copies of the Bill of Com-
plaint in each case; Answer in each case; Order
Transferring case; Stipulation of Facts in each
case; Order Consolidating Cases and Allowing Fil-
ing Amended and Supplemental Answer in Case
No. 1461; Amended and Supplemental Answer in
Case No. 1461 ; Decision of Court in each case ; Find-
ings of Fact and Conclusions of Law; Judgments;
Notice of Appeal in each case ; Stipulation and Or-
der for Consolidated Record on Appeal; Stipula-
tion and Order Extending Time to Docket Appeal;
Stipulation Designating Record on Appeal and
Stipulation and Order for Transmittal of Original
Exhibits, Reporter's Transcript, etc., to the Circuit
Court of Appeals, which together with the Original
Exhibits and Reporter's Transcript of Proceedings
transmitted herewith constitute the record on ap-
peal to the United States Circuit Court of Appeals
for the Ninth Circuit.

I do further certify that the clerk's fees for com-
paring, correcting and certifying the foregoing rec-
ord amount to $10.10 wThich amount has been paid
to me by Appellant.

Witness my hand and the seal of the District

72 Signal Oil and Gas Co.

Court of the United States for the Southern Dis-
trict of California, this 3rd day of May, A. D. 1941.
[Seal] R. S. ZIMMERMAN,

Clerk,
By: EDMUND L. SMITH

Deputy. [67]

[STATEMENT OF FACTS
Stipulated to in lieu of Reporter's Transcript]

(a) That these are suits in equity by the United
States of America of a civil nature arising under
the laws of the United States providing for internal
revenue and the collection thereof, brought on Sep-
tember 9, 1938, at the direction of the Attorney
General and begun and prosecuted with the sanction
and at the request of the Commissioner of Internal
Revenue to obtain relief for the appellee ; and that
the appellee has no clear, adequate, or complete
remedy at law.

(b) That pursuant to and in accordance with
an agreement between the Signal Gasoline Com-
pany, a California corporation, and the Signal Gas-
oline Corporation, a California corporation, dated
May 1, 1924, all the assets of the Signal Gasoline
Company were turned over to the Signal Gasoline
Corporation for 400,000 shares of stock of the Sig-
nal Gasoline Corporation plus the assumption of
"outstanding liabilities" not exceeding $51,076.80
(including all income taxes that may be due the
United States Government to the date of the assign-

vs. United States of America 73

ment), and on September 11, 1924, the Signal Gas-
oline Company was dissolved; the 400,000 shares,
received by the Signal Gasoline Company in ex-
change for its net assets, were distributed to its
stockholders.

(c) That at all times herein mentioned the Sig-
nal Gasoline Company, Inc., a corporation now dis-
solved, was, prior to its dissolution, a holding com-
pany for the stock of the Signal Gasoline Corpora-
tion.

(d) That on July 31, 1928, the Signal Gasoline
Company, Inc., owned 419,500 shares of the stock
of the Signal Gasoline Corporation, which was
93.22% of the outstanding 450,005 shares of the
Signal Gasoline Corporation; the balance of 30,505
shares of the stock outstanding of the Signal Gas-
oline Corporation (4.23%) was owned by individual
stockholders of the Signal Gasoline Company, Inc.

(e) That on August 1, 1928, the appellant, Sig-
nal Oil and Gas Company, acquired all the assets
of the Signal Gasoline Company, Inc., which, as
noted above, included 93.22% of the stock of the
Signal Gasoline Corporation, in exchange for stock
of the Signal Oil and Gas Company.

(f) That on or about November 30, 1928, the
appellant, Signal Oil and Gas Company, acquired
the remaining 4.23% of the outstanding stock of the
Signal Gasoline Corporation from the individual
stockholders of the Signal Gasoline Company, Inc.,
by exchange for stock of the Signal Oil and Gas
Company.

74 Signal Oil and Gas Co.

(g) That the Signal Gasoline Corporation was
liquidated as of December 1, 1928, and all of its
assets and liabilities were assigned in accordance
with a certain instrument of conveyance and the
Decree of Dissolution of the Superior Court. That
Plaintiff's Exhibits 1 and 2 respectively, are true
copies of the said instrument of conveyance and the
Decree of Dissolution, and are attached hereto and
made a part hereof.

(h) That the original 1923 income tax return
of Signal Gasoline Company was filed by or on
behalf of the Company on March 15, 1924, and an
amended return for that year was filed on May 13,
1925. A tentative income tax return for Signal
Gasoline Company for 1924 was filed March 16,
1925, and the final return for the year 1924 was
filed on May 13, 1925.

(i) That on October 2, 1928, and again on De-
cember 28, 1929, the Commissioner of Internal Rev-
enue duly addressed and mailed a letter to the
Signal Gasoline Corporation setting forth certain
transferee deficiencies ; the letter of October 2, 1928,
claiming a deficiency of $468.33 for 1923 to be due
from Signal Gasoline Corporation as transferee of
the assets of Signal Gasoline Company; the letter
of December 28, 1929, claiming a deficiency of
$2,672.53 for the period ended September 11, 1924,
to be due from Signal Gasoline Corporation as
transferee of the assets of Signal Gasoline Com-
pany.

vs. United States of America 75

(j) That thereafter petitions in the name of the
Signal Gasoline Corporation were filed with the
Board of Tax Appeals for a redetermination of the
deficiencies proposed in the said letters dated Octo-
ber 2, 1928, and December 28, 1929 ; that the appeal
from the deficiency proposed in the letter of Octo-
ber 2, 1928, was on November 19, 1928, docketed
with the Board of Tax Appeals under No. 41532;
that the appeal from the deficiency proposed in the
letter of December 28, 1929, was on February 24,
1930, docketed with the Board of Tax Appeals un-
der No. 47620. The petition numbered 47620 stated
in its first paragraph that "The Petitioner is a
dissolved Corporation acting through its statutory
trustees * * *"; the verification on the petition
numbered 47620 was signed by six persons, and this
verification stated that these six persons were
"* * * the statutory trustees of Signal Gasoline
Corporation, a dissolved corporation * * *"• that
the petition numbered 41532 and the petition num-
bered 47620 were each signed by Robert N. Miller
and Melvin D. Wilson, as attorneys for the peti-
tioners; that on February 16, 1932, the Board of
Tax Appeals purported to affirm the rulings of the
Commissioner of Internal Revenue in asserting the
deficiencies appealed from in petitions numbered
41532 and 47620; that said decision of the Board
of Tax appeals is contained in an opinion reported
in 25 Board of Tax Appeals 532.

(k) That on September 10, 1932, the Commis-

76 Signal Oil and Gas Co.

sioner of Internal Revenue purported to assess the
Signal Gasoline Corporation as a transferee of the
Signal Gasoline Company, for the above described
tax liabilities of the Signal Gasoline Company in
the amounts and for the taxable periods as follows :
For the taxable year 1923, $468.33 plus interest
of $227.96. For the taxable period ended Sep-
tember 11, 1924, $2,672.53 plus interest of
$1,200.70.

That attached hereto and made a part hereof is
a true copy of Plaintiff's Exhibit J which is a true
copy of the Assessment List of the Commissioner
of Internal Revenue.

(1) Signal Gasoline Corporation filed its in-
come tax return for the calendar year 1924 on or
about May 13, 1925.

(m) On December 3, 1928, the Signal Gasoline
Corporation signed and filed Form 872, which is
entitled " Consent Fixing Period of Limitation upon
Assessment of Income and Profits Tax"; that
Plaintiff's Exhibit 4 is a true copy of the said form,
and is attached hereto and made a part hereof.

(n) On December 28, 1929 the Commissioner of
Internal Revenue addressed and mailed a letter to
the Signal Gasoline Corporation; this letter pro-
posed an assessment of additional tax liabilities
against the Signal Gasoline Corporation on account
of an alleged deficiency in its income tax for the
period May 1, to December 31, 1924, in the amount
of $14,137.05; that the said letter also proposed an

vs. United States of America 77

assessment of other additional tax liabilities for
the calendar years 1925 and 1926.

(o) Under date of November 21, 1928, the Sig-
nal Gasoline Corporation executed a power of at-
torney to certain attorneys authorizing the said
attorneys to represent the Signal Gasoline Corpora-
tion before the Treasury Department of the United
States and the United States Board of Tax Ap-
peals with reference to the tax liabilities of the
Signal Gasoline Corporation for the calendar years
1924 and 1925; that attached hereto and made a
part hereof is a true copy of Plaintiff's Exhibit 6
which is a true copy of said Power of Attorney.

(p) That under date of November 20, 1929, a
power of attorney was executed whereby certain
attorneys were authorized to represent Signal Gas-
oline Corporation, a dissolved corporation, before
the Treasury Department and the Board of Tax
Appeals in connection with the tax liabilities of
the said corporation for the calendar years 1926
and 1927- that attached hereto is a true copy of
Plaintiff's Exhibit 7 which is a true copy of said
Power of Attorney.

(q) That on or about February 24, 1930, a peti-
tion was filed with the Board of Tax Appeals for
a redetermination of the 1924, 1925 and 1926 defi-
ciencies proposed in the Commissioner's letter dated
December 28, 1929, above referred to; that said
proceeding was therein given docket No. 47621 ; that
said petition was filed under the name of the Sig-

78 Signal Oil and Gas Co,

nal Gasoline Corporation; the petition numbered
47621 stated in its first paragraph that: "The peti-
tioner is a dissolved California corporation acting
through its statutory trustees * * *"; the verifi-
cation on the petition numbered 47621 was signed
by six persons, and this verification stated that these
six persons were "* * * the statutory trustees of
Signal Gasoline Corporation, a dissolved corpora-
tion * * *"; that the petition numbered 47621 was
signed by Robert N. Miller and Melvin D. Wilson
as attorneys for the petitioners; that on March 15,
1932, the Board of Tax Appeals purported to affirm
the rulings of the Commissioner of Internal Rev-
enue in asserting the deficiencies appealed from in
petition numbered 47621; that said decision of the
Board of Tax Appeals is contained in an opinion
reported in 25 Board of Tax Appeals 861.

(r) On October 1, 1932, the Commissioner of
Internal Revenue purported to assess the Signal
Gasoline Corporation for its tax deficiency for the
calendar year 1924 in the principal amount of
$14,137.05, plus interest of $6,080.77; that attached
hereto and made a part hereof is a true copy of
Plaintiff's Exhibit 9 which is a true copy of the
Assessment list of the Commissioner of Internal
Revenue.

(s) That by reason of the dissolution of the
Signal Gasoline Corporation and the disbursement
of all of its assets to its statutory trustees, as above
set forth, the Signal Gasoline Corporation was and

vs. United States of America 79

is left without any money, assets or property of
any kind with which to pay the said taxes and in-
terest claimed herein by the United States.

(t) That the assets which were acquired by the
appellant, Signal Oil and Gas Company, as sole
stockholder of the Signal Gasoline Corporation, as
heretofore shown, were far in excess of the taxes
and interest prayed for in the complaints herein.

(u) That due demand for the payment of the
taxes and interest prayed for in the complaints
herein has been made upon the Signal Oil and Gas
Company but no portion thereof has been paid.

(v) That at all times herein mentioned and
considered substantially the same persons were of-
ficers and directors or statutory trustees of the
Signal Gasoline Corporation as were the officers
and directors of the Signal Oil and Gas Company
and officers and directors of the Signal Gasoline
Company.

(w) That in the proceedings before the Board
of Tax Appeals under docket numbers 41532, 47620
and 47621, no substitution of parties was ever made
and no motion for such substitution was ever made
by either of the parties.

(x) A protest against a proposed deficiency for
1927 income taxes of Signal Gasoline Corporation
was signed about November 20, 1929. This protest
was signed " Signal Gasoline Corporation, By S. B.
Mosher". At the left of the said signature, five
other trustees of the dissolved corporation signed

80 Signal Oil and Gas Co.

their names. The protest was verified by Melvin D.
Wilson, one of the attorneys in fact and in law, who
stated that he had verified it for the reason that
when "the statutory trustees" signed the protest,
they neglected to acknowledge it before a notary
public.

An offer to compromise the taxes here involved,
acknowledged October 21, 1932, was filed shortly
thereafter. It was signed "Signal Gasoline Corpo-
ration, By S. B. Mosher, EL M. Mosher, O. W.
March, R. H. Green, C. LaV. Larzelere". The ac-
knowledgment stated that the above named persons
were the statutory trustees of Signal Gasoline Cor-
poration, a dissolved corporation. In the body of
the offer, it was stated that Signal Gasoline Cor-
poration was dissolved December 12, 1928.

A similar offer, acknowledged January 23, 1933,
and filed shortly thereafter, stated that Signal Gas-
oline Corporation was dissolved December 12, 1928.
It was signed "Signal Gasoline Corporation, By
Melvin D. Wilson, Attorney in Fact". In the ac-
knowledgment, it was stated that Signal Gasoline
Corporation was a dissolved corporation.

(y) Except for the matters covered in this
record, no other correspondence with the Commis-
sioner or Collector of Internal Revenue was filed
by or on behalf of the Signal Gasoline Company or
the Signal Gasoline Corporation after their dis-
solution, excepting:

1. That on January 20, 1932, a letter to the
Commissioner was written and signed "Signal Gas-

vs. United States of America 81

oline Corporation, By J. H. Rounsavell, Comp-
troller", advising the Commissioner to change his
records so that all correspondence relative to the
income tax matters of Signal Gasoline Corporation
for 1924 to 1928 inclusive would be sent to 1200
Signal Oil Building, 811 West Seventh Street, Los
Angeles, California.

2. On January 20, 1932, a letter to the Com-
missioner signed " Signal Gasoline Company, By
J. H. Rounsavell, Comptroller", was mailed, advis-
ing the Commissioner to change his records so that
all correspondence pertaining to the income liabil-
ity of Signal Gasoline Company for 1922 to 1924
inclusive would be sent to 1200 Signal Oil Building,
811 West Seventh Street, Los Angeles, California.

3. On January 20, 1932, a letter to the Commis-
sioner, signed by " Signal Gasoline Company, Inc.
by J. H. Rounsavell, Comptroller" was mailed, ad-
vising the commissioner to change his records so
that all correspondence pertaining to the income tax
liability of Signal Gasoline Company for 1925, 1926,
1927 and 1928 inclusive would be sent to 1200 Signal
Oil Building, 811 West Seventh Street, Los An-
geles, California.

4. On July 27, 1931, a letter signed "Signal Gas-
oline Corporation, by J. H. Rounsavell, Comptrol-
ler" was mailed to the Collector at Los Angeles,
California, stating that there was pending before
the United States Board of Tax Appeals the ques-
tion of whether Signal Gasoline Corporation was

82 Signal Oil and Gas Co.

liable for the 1923 income tax liability of Signal
Gasoline Company.

(z) That no assessment was ever made against
the Signal Oil and Gas Company for the 1923 and
1924 tax liabilities of the Signal Gasoline Com-
pany; that no assessment was ever made against
the Signal Oil and Gas Company for the tax liabili-
ties due from the Signal Gasoline Corporation for
the year 1924; that no assessment was ever made
against the Signal Gasoline Company for the said
1924 tax liability of the Signal Gasoline Company;
that an assessment against the Signal Gasoline
Company was made on July 3, 1931, in the amount
of $468.33 plus interest for its said tax liability
for the calendar year 1923.

(aa) On May 13, 1929, a corporation income
tax return for 1928 was filed with the Collector of
Internal Revenue at Los Angeles, California on
behalf of the Signal Gasoline Corporation and was
signed by S. B. Mosher, as President, and O. W.
March, as Treasurer of the said corporation. In
said return it was stated in Affiliation Schedule
No. 3 thereof that the Signal Gasoline Corporation
had been dissolved in December of 1928.

(bb) In a Revenue Agent's report, dated Au-
gust 26, 1930, it was stated that the Signal Gaso-
line Corporation had distributed all of its assets
to its sole stockholder, the Signal Oil and Gas
Company, upon its dissolution in December, 1928.
In a letter dated March 30, 1931 from the Commis-
sioner of Internal Revenue and addressed to the

vs. United States of America 83

Signal Gasoline Corporation, which letter was the
60-day letter proposing additional taxes for the
year 1928, it was stated that the Signal Gasoline
Corporation had been dissolved in December, 1928.

PLAINTIFF'S EXHIBIT 1

SIGNAL GASOLINE COKPORATION

NOTICE RE: CONVEYANCE OF ASSETS

Know All Men By These Presents:

That whereas, on the 12th day of December, 1928,
The Superior Court of the State of California in
and for the County of Los Angeles made and filed
its decree dissolving the Signal Gasoline Corpora-
tion, which decree was, on the 13th day of Decem-
ber, 1928 entered in Book 701 at Page 165 of Judg-
ments, Records of said County of Los Angeles, and
whereas, in the aforesaid Decree it was ordered and
decreed that S. B. Mosher, H. M. Mosher, O. W.
March, Ross McCollum, C. LaV. Larzelere and
R. H. Green were entitled to be, and were by the
Court therein appointed Trustees for the stockhold-
ers of said corporation, with power and direction
to settle all the affairs of said corporation and to
distribute and convey all of the property of said
corporation to the stockholders thereof a copy of
which decree is hereunder annexed and made a part
hereof, and whereas the Signal Oil and Gas Com-
pany, a Delaware corporation, is the owner and
holder of all the issued and outstanding stock of

84 Signal Oil and Gas Co.

said Signal Gasoline Corporation and as such is
entitled to distribution of all of the property of
said Signal Gasoline Corporation; Now therefore,
in consideration of the premises S. B. Mosher,
H. M. Mosher, O. W. March, Ross McCollum, C.
LaV. Larzelere and E. H. Green, as Trustees for
the stockholders of said Signal Gasoline Corpora-
tion, a dissolved corporation, and also in their
individual capacities, do hereby assign, transfer,
grant, convey, deliver and distribute to said Signal
Oil and Gas Company, a Delaware corporation, all
of the assets, business and property as a whole and
of every kind, character and description, both tan-
gible and intangible, legal and equitable and wher-
ever situated, including all real property and all
interests therein situate in the State of California
and elsewhere, possessed by said dissolved corpora-
tion at the time of its dissolution, including all cash
on hand and all bills and accounts receivable of said
dissolved corporation from whomever due and
wheresoever evidences thereof, if any, may be held,
and all contract rights, rights of action, vouchers
and things in action, and without any limitation or
exception whatsoever, and subject to all outstand-
ing obligations and liabilities thereon, and subject
to the payment of income taxes that may be due
to the United States Government covering opera-
tions of said dissolved corporation during the cur-
rent year and all sums that may be found due cov-
ering income taxes for previous years. We further

vs. United States of America 85

give to said Signal Oil and Gas Company, its suc-
cessors and assigns, both power and authority for
its own use and benefit, but at its own cost, to take
all legal measures which may be proper and nec-
essary for the complete recovery of any of the
property hereby assigned, and in its own name to
prosecute and withdraw any suit at law or equity
therefor. The transfer of the foregoing property
shall take effect as of the date of this instrument,
to-wit: the 14th day of December, 1928.

In Witness Whereof, we have executed this in-
strument in the manner hereinafter appearing, in
the capacity and pursuant to the authority above
related and also in our individual capacities, this
14th day of December, 1928.

R. H. GREEN

C. LaV. LARZELERE

O. W. MARCH

ROSS McCOLLUM

S. B. MOSHER

H. M. MOSHER
as Trustees for the Signal Gasoline Corporation,
a Dissolved Corporation.

R. H. GREEN

C. LaV. LARZELERE

O. W. MARCH

ROSS McCOLLUM

S. B. MOSHER

H. M. MOSHER
as individuals.

86 Signal Oil and Gas Go,

(Subscribed and sworn to before May E. Martin,
Notary Public, December 14, 1928.)

[Endorsed] : U. S. Exhibit No. 1. Piled 1/16/40.
B. S. Zimmerman, Clerk. By Louis J. Somers, Dep-
uty Clerk.

PLAINTIFF'S EXHIBIT 2

In the Superior Court of the State of California,
in and for the County of Los Angeles

No. 263815

In the Matter of the Application of

SIGNAL GASOLINE CORPOEATION, a cor-
poration, for Dissolution.

DECREE OF DISSOLUTION

The voluntary application for dissolution of the
Signal Gasoline Corporation, a domestic corpora-
tion, coming on regularly this day for hearing and
determination, the Court finds: 1. That on Oc-
tober 19, 1928 in accordance with the order of the
Judge of this Court, the said Signal Gasoline Cor-
poration filed with the Clerk of this Court its ap-
plication for its dissolution as a corporation. 2.
That in accordance with the order of a Judge of
this Court the Clerk of said Court has given thirty
days' notice of said application for dissolution, by
publication in the Los Angeles Daily Journal, a
newspaper of general circulation printed and pub-

vs. United States of America 87

lished in the said County of Los Angeles, which
thirty days' notice which said publication thereof
was completed and expired on November 27, 1938.
'3. That no objection to said application for dis-
solution has at any time been filed. 4. All allega-
tions and statements in said application for disso-
lution made are true and to this court, by this evi-
dence introduced herein, have been shown so to be.
5. And it further appears to the Court from evi-
dence introduced herein that the Board of Direc-
tors of said corporation under its Articles of In-
corporation consisted of six (6) members and does
now consist of six (6) members, namely:

S. B. MOSHER

O. W. MARCH

ROSS McCOLLUM

H. M. MOSHER

C. LaV. LARZELERE

R. H. GREEN

Wherefore, it is Ordered, Adjudged and Decreed,
that said Corporation, the Signal Gasoline Corpora-
tion be, and the same is, and is hereby declared to
be dissolved. It is further Ordered and Decreed
that said S. B. Mosher, H. M. Mosher, O. W. March,
Ross McCollum, C. LaV. Larzelere and R. H. Green
are entitled to be, and are by the Court herein ap-
pointed, trustees for the stockholders of said cor-
poration, with power and direction to settle all the
affairs of said corporation, and to distribute and
convey all the property of said corporation to each
of said stockholders, in proportion to the number of

88 Signal Oil and Gas Go.

shares owned and held by said stockholders when
said distribution and conveyance shall be made.

Done in open Court this 12th day of December 1928.
(Signed) MARSHALL McCOMB,

Judge.
#1816 Copy of original recorded at request of
Signal Oil and Gas Company, 503 Roosevelt Build-
ing, Los Angeles, Calif., March 6, 1929 at 58 min-
utes past 2 p. m.

Copyist #61. Compared.

C. L, LOGAN,

Recorder,
By W. WHITNEY,

Deputy.

[Endorsed] : U. S. Exhibit No. 2. Filed 1/16/40.
R. S. Zimmerman, Clerk. By Louis J. Somers,
Deputy Clerk.

PLAINTIFF'S EXHIBIT "J"

ASSESSMENT CERTIFICATE
COMMISSIONER'S ASSESSMENT LIST

6th District of California
Month September 2 Year 1932
Additional Assessments made by Commissioner:

Personal $ 70,966.13

Corporation 4,933,98

Total Assessments 75,900.11

I hereby certify that I have made inquiries, de-
terminations, and assessments of taxes, penalties,

vs. United States of America 89

etc., of the above classification specified in these
lists, and find that the amounts of taxes, penalties,
etc., stated as corrected and as specified in the sup-
plementary pages of this list made by me are due
from the individuals, firms, and corporations oppo-
site whose names such amounts are placed, and that
the amount chargeable to the collector is as above.

Dated at Washington, D. C.

Office of Commissioner of Internal Revenue, Sep-
tember 10, 1932

(Signed) DAVID BURNET
Commissioner of Internal Revenue

90

Signal Oil and Gas Co.

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vs. United States of America 91

PLAINTIFF'S EXHIBIT 4

CONSENT FIXING PERIOD OF LIMITATION
UPON ASSESSMENT OF INCOME AND
PROFITS TAX

For Taxable Years Ended Prior to January 1, 1926.

November 21, 1928
In pursuance of the provisions of existing Inter-
nal Revenue Laws Signal Gasoline Corporation, a
taxpayer of Los Angeles, California, and the Com-
missioner of Internal Revenue hereby consent and
agree as follows:

That the amount of any income, excess-profits,
or war-profits taxes due under any return made
by or on behalf of the above-named taxpayer for
the year (or years) 1924 and 1925, under existing
acts, or under prior revenue acts, may be assessed
at any time on or before December 31, 1929, except
that, if a notice of a deficiency in tax is sent to said
taxpayer by registered mail on or before said date,
then the time for making any assessment as afore-
said shall be extended beyond the said date by the
number of days during which the Commissioner is
prohibited from making an assessment and for sixty
days thereafter.

[Seal] SIGNAL GASOLINE

CORPORATION
S. B. MO'SHER, Pres.

Taxpayer

By ,

D. H. BLAIR Commissioner

92 Signal Oil and Gas Co.

If this consent is executed on behalf of a cor-
poration, it must be signed by such officer or officers
of the corporation as are empowered under the laws
of the State in which the corporation is located to
sign for the corporation, in addition to which, the
seal, if any, of the corporation must be affixed.
Where the corporation has no seal, the consent must
be accompanied by a certified copy of the resolution
passed by the Board of Directors, giving the officer
authority to sign the consent.

(U. S. Board of Tax Appeals Div. 8 Docket
47621— Admitted in Evidence June 3 1931 Peti-
tioner's Exhibit "A")

(Received Dec. 3 1928 Office of Head Audit Re-
view Division)

[Endorsed] : IT. S. Exhibit No. 4. Piled 1/16/40.
R. S. Zimmerman, Clerk. By Louis J. Somers,
Deputy Clerk.

PLAINTIFF'S EXHIBIT 6

Power of Attorney

Los Angeles, California,
November 21, 1928.
Commissioner of Internal Revenue,
Washington, D. C.
Sir:—

The undersigned corporation, Signal Gasoline
Corporation, a corporation duly organized and ex-
isting under the laws of the State of California,
with its principal place of business at Los Ange-

vs. United States of America 93

les, California, does hereby make, constitute and
appoint Dana Latham and Melvin D. Wilson, of
Miller, Chevalier & Latham, 819 Title Insurance
Bldg., Los Angeles, California; Eobert N. Miller
and Ward Loveless, of Miller & Chevalier, 922
Southern Bldg., Washington, D. C; Walker S.
Clute, Roosevelt Bldg., Los Angeles, California,
and Roger F. White, 804 Hellman Bank Bldg.,
Los Angeles, California, and each of them, its true
and lawful attorneys, for it and in its name to rep-
resent it before the Treasury Department of the
United States, any bureau or official thereof, and
the United States Board of Tax Appeals, in all
matters pertaining to the determination, assessment,
collection or payment of any taxes under the laws
of the United States and to all claims for abate-
ment, refund or credit based on the assessment or
payment of any such taxes; and, without limiting
the foregoing powers, to examine and to request
and receive copies of all returns, claims and other
documents; to receive and receipt, in its behalf,
for all checks and warrants made by the United
States on account of any refunds; and generally
to do, execute and perform all acts and things
necessary or convenient in the premises (includ-
ing authority to verify petitions to the said Board
of Tax Appeals), with full power of substitution
and revocation, hereby ratifying and confirming
all that its attorneys and substitutes from time to
time shall do or cause to be done by virtue thereof,
and hereby expressly revoking all previous Pow-
ers of Attorney given by said corporation.

94 Signal Oil and Gas Co.

The foregoing powers shall apply to each of the
transactions heretofore directed or authorized, with
respect to taxes for the years 1924 and 1925.
Respectfully,
(Seal) SIGNAL GASOLINE
CORPORATION,
By S. B. MOSHER,
By O. W. MARCH.

State of California,
County of Los Angeles — ss.

On this 23 day of November, A. D. 1928, person-
ally before me appeared the above named S. B.
Mosher and O. W. March, to me known to be the
parties who executed the foregoing Power of Attor-
ney, who, first being duly sworn, stated: that they
are the President and Secretary respectively, of
the above-named corporation; that they1 signed,
sealed and delivered the above instrument, pur-
suant to authority duly conferred upon them in
that behalf, as the free and voluntary act of the
said corporation, for the uses and purposes therein
set forth.

In Witness whereof, I have hereunto set my
hand and affixed my official seal this 23 day of No-
vember, A. D. 1928.

(Seal) MARY E. MARTIN,
Notary Public, in and for the County of Los An-
geles, State of California.

[Endorsed]: U. S. Exhibit No. 6. Filed 1-16-40.
R. S. Zimmerman, Clerk. By Louis J. Somers, Dep-
uty Clerk.

vs. United States of America 95

PLAINTIFF'S EXHIBIT 7

Power of Attorney

Los Angeles, California.
November 20, 1929.
Commissioner of Internal Revenue,
Washington, D. C.
Sir:—

The undersigned corporation, Signal Gasoline
Corporation, a dissolved California corporation,
through its statutory trustees whose principal place
of business is at 505 Roosevelt Building, Los An-
geles, California, does hereby make, constitute and
appoint the law firm of Miller, Chevalier, Peeler
& Wilson, 819 Title Insurance Bldg., Los Angeles,
California, particularly Joseph D. Peeler and Mel-
vin D. Wilson of that firm ; and the law firm of Mil-
ler & Chevalier, 922 Southern Building, Washing-
ton, D. C, particularly Robert N. Miller, Ward
Loveless, and J. Robert Sherrod of that firm ; Walk-
er S. Clute, Roosevelt Bldg., Los Angeles, Califor-
nia; and Roger F. White, Hellman Bank Bldg.,
Los Angeles, California, and each of them its true
and lawful attorneys for it and in its name to rep-
resent it before the Treasury Department of the
United States, any bureau or official thereof, and
the United States Board of Tax Appeals, in all
matters pertaining to the determination, assessment,
collection or payment of any taxes under the laws
of the United States and to all claims for abate-
ment, refund or credit based on the assessment or

96 Signal Oil and Gas Co.

payment of any such taxes; and, without limiting
the foregoing powers, to examine and to request
and receive copies of all returns, claims and other
documents; and generally to do, execute and per-
form all acts and things necessary or convenient
in the premises (including authority to verify pe-
titions to the said Board of Tax Appeals), with
full power of substitution and revocation, hereby
ratifying and confirming all that its attorneys
and substitutes from time to time shall do or cause
to be done by virtue thereof, and hereby expressly
revoking all previous Powers of Attorney given
by said corporation.

The foregoing powers shall apply to each of
the transactions heretofore directed or authorized,
with respect to taxes for the years 1926 and 1927.

Respectfully,
SIGNAL GASOLINE

CORPORATION,
By S. B. MOSHER.
R. H. GREEN
O. W. MARCH
ROSS. McCOLLUM
H. M. MOSHER
C. L. LARZALERE

State of California,
County of Los Angeles — ss.

On this 23 day of November, A. D. 1929, per-
sonally before me appeared the above named to me
known to be the parties who executed the forego-

vs. United States of America 97

ing Power of Attorney, who, first being duly sworn,
stated: that they are the statutory trustees of the
above-named dissolved corporation ; that they signed,
sealed and delivered the above instrument, pur-
suant to authority duly conferred upon them in
that behalf, as the free and voluntary act of the
said dissolved corporation, for the uses and pur-
poses therein set forth.

In witness whereof, I have hereunto set my hand
and affixed my official seal this 23 day of Novem-
ber, A. D. 1929.

(Seal) MARY E. MARTIN,
Notary Public, in and for the County of Los An-
geles, State of California.

[Endorsed]: U. S. Exhibit No. 7. Filed 1-16-40.
R. S. Zimmerman, Clerk. By Louis J. Somers, Dep-
uty Clerk.

PLAINTIFF'S EXHIBIT 9

Assessment Certificate
Commissioner's Assessment List
6th District of California. Month October 1 Year
1932.
Additional Assessments made by Commissioner:
Personal— $39706.99.
Corporation— $104301.15.
Total Assessments— $144008.14.
I hereby certify that I have made inquiries, de-
terminations, and assessments of taxes, penalties,
etc., of the above classification specified in these

98 Signal Oil and Gas Co,

lists, and find that the amounts of taxes, penal-
ties, etc., stated as corrected and as specified in
the supplementary pages of this list made by me
are due from the individuals, firms, and corpora-
tions opposite whose names such amounts are placed,
and that the amount chargeable to the collector
is as above.

Dated at Washington, D. C, Office of Commis-
sioner of Internal Revenue, October 1, 1932.
(Signed) DAVID BURNET,

Commissioner of Internal Revenue,

vs. United States of America

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100 Signal Oil and Gas Co.

[Endorsed]: No. 9813. United States Circuit
Court of Appeals for the Ninth Circuit. Sig-
nal Oil and Gas Company, a Corporation, Appel-
lant, vs. United States of America, Appellee. Tran-
script of Record Upon Appeals From the District
Court of the United States for the Southern Dis-
trict of California, Central Division.

Filed May 6, 1941.

PAUL P. O'BRIEN,

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

vs. United States of America 101

United States Circuit Court of Appeals for the
Ninth Circuit

No. 9813

SIGNAL OIL AND GAS COMPANY, a Cor-
poration, Appellant,

vs.

UNITED STATES OF AMERICA,

Appellee.

SIGNAL OIL AND GAS COMPANY, a Cor-
poration, Appellant,

vs.

UNITED STATES OF AMERICA,

Appellee.

STATEMENT OF POINTS UPON WHICH AP-
PELLANT INTENDS TO RELY ON
THE APPEAL.

1. There was no evidence introduced at the trial
showing that the taxes sued on were due from
anyone. The alleged assessments relied on by the
Appellee for that purpose were void and prove
nothing, having been purportedly made long after
the corporations against which they were supposed
to have been made had been dissolved and utterly
destroyed by their dissolution. Said alleged assess-
ments were based upon alleged proceedings in the
Board of Tax Appeals wherein the Appellee was
guilty of laches in that it did not move for a dis-

102 Signal Oil and Gas Co.

missal or substitution of the parties petitioner al-
though long- having knowledge that the petitioners
had been dissolved and destroyed by their disso-
lutions.

2. The suits by Appellee were barred by the
statute of limitations as they were not brought
within four years of the filing of the returns of
the corporations whose taxes were involved and
no assessment was made against the Appellant, but
the Appellee was relying upon a six-year period
within which to sue Appellant after alleged assess-
ments against a prior transferee, but the alleged
assessments against the prior transferee were in-
valid for the reason stated in Point 1, and even
if the assessments against the prior transferee had
been valid, they would not give Appellee six years
within which to sue subsequent transferees.

3. Appellant is not estopped from asserting the
bar of the statute of limitations, Appellee having
at all times been in possession of all the material
facts and having initially made an error of law
which error misled the Appellant into further er-
rors of law, if appellant made any errors of law,
but estoppel does not arise from errors or mutual
errors of law.

vs. United States of America 103

4. The judgments against Appellants should be
reversed.

Dated: May 1, 1941.

MELVIN D. WILSON,
JOSEPH D. PEELER,
By M. D. W.

819 Title Insurance Building, Los Angeles, Cali-
fornia, Counsel for Appellant.

Received copy of the within this 1 day of May,
1941.

WM. FLEET PALMER,
U. S. Atty.
By ARMOND MONROE JEWELL,
Attorney for Appellee.

[Endorsed] : Filed May 6, 1941. Paul P. O'Brien,
Clerk.

[Title of Circuit Court of Appeals and Cause.]

STIPULATION DESIGNATING THOSE POR-
TIONS OF THE RECORD ON APPEAL
DEEMED MATERIAL AND WHICH ARE
THEREFORE TO BE PRINTED.

Pursuant to Rule 19, Subdivision 6, of the Rules
of Court of the United States Circuit Court of
Appeals for the Ninth Circuit, It Is Hereby Stipu-
lated by and between the respective parties hereto,
through their respective counsel, that the follow-
ing are deemed the material portions of the record
on appeal in the above entitled cases and which
are therefore to be printed:

104 Signal Oil and Gas Co.

1. Order Transferring Case Pursuant to Rule
19, dated February 8, 1939 (Case 1461 R.J.) (R.
p. 23.)

2. Complaint (Case 1460- Y) (R. p. 2 to p. 6
inc.)

3. Complaint (Case 1461-Y) (R. p. 7 to p. 11
inc.)

4. Answer (Case 1460-Y) (R. p. 12 to p. 17
inc.)

5. Answer (Case 1461-Y) (R. p. 18 to p. 22
inc.)

6. Stipulation (Case 1460-Y) (R. p. 24 to p. 29
inc.)

7. Stipulation (Case 1461-Y) (R. p. 30 to p. 36
inc.)

8. Minute Order of Court before Hon. Leon R.
Yankwich, Tuesday, January 16, 1940 (Cases 1460-
Y and 1461-Y) (R, p. 37)

9. Amended and Supplemental Answer (Case
No. 1461-Y) (R. p. 38 to p. 40 inc.)

10. Minute Order (Case No. 1460-Y) (R. pp. 41,
42)

11. Minute Order (Case 1461-Y) (R. pp. 43,
44)

12. Findings of Fact and Conclusions of Law
(Cases 1460-Y and 1461-Y) (R, p. 45 to p. 54 Inc.)

13. Judgment (Cases 1460-Y and 1461-Y) (R.
pp. 55, 56)

14. Notice of Appeal (Case 1460-Y) (R. p. 57)

15. Notice of Appeal (Case 1461-Y) (R, p. 58)

16. Stipulation for Consolidated Record on Ap-

vs. United States of America 105

peal and Order attached (Cases 1460- Y and 1461-
Y) (R. pp. 59, 60)

17. Stipulation for Order Extending Time for
Filing- Record on Appeal and Docketing the Ac-
tion, and Order (Cases 1460-Y and 1461-Y) (R.
pp. 61, 62)

18. Designation of Record on Appeal (Cases
1460-Y and 1461-Y) (R. pp. 63, 64)

19. Order Permitting Original Exhibits to be
Sent to Circuit Court in lieu of Copies on Appeal
(Cases 1460-Y and 1461-Y) (R. pp. 65, 66)

It is further stipulated by and between the re-
spective parties hereto, through their respective
counsel, that in lieu of printing the material por-
tions of the admissions in the pleadings, the writ-
ten stipulations of fact, the documents admitted
into evidence, and the verbal stipulations contained
in the transcript of record, that for the purpose of
this apeal, the following statement may and should

106 Signal Oil and Gas Go.

be printed as a summary of the facts adduced there-
from:

Dated: May 2, 1941.
MELVIN D. WILSON,
JOSEPH D. PEELER.
Attorneys for Apellant.

WM. FLEET PALMER,
United States Attorney.
E. H. MITCHELL,
Asst, United States Attorney.
ARMOND MONROE JEWELL,
Asst. United States Attorney.
By ARMOND MONROE JEWELL,
Attorneys for Appellee.
Approved :

LEON R. YANKWICH,
District Judge.

[Endorsed]: Filed May 6, 1941. Paul P. O'Brien,
Clerk.

IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Signal Oil and Gas Company, a corporation,

Appellant,

vs.

United States of America,

Appellee.

BRIEF FOR APPELLANT.

Melvin D. Wilson,
819 Title Insurance Building, Los Angeles,
Attorney for Appellant.

Parker & Baird Company, Law Printers, Los Angeles.

TOPICAL INDEX.

PAGE

Opinion Below 1

Jurisdiction 1

Questions Presented 2

Statutes Involved 2

Statement 3

Specification of Errors Relied Upon 14

Summary of Argument 15

Argument 16

(1) No evidence was introduced at the trial proving that the
taxes sued upon were due from anyone, the alleged
assessments relied upon by the appellee for that purpose
being void 16

(2) The alleged assessments, being void, do not start a six-
year period in which the appellee could sue transferees.... 22

(3) If, contrary to appellant's contention, the alleged assess-
ments are held to be valid, they were made against the
first transferees of the taxpaying corporations and said
assessments did not give the appellee six years in which

to sue subsequent transferees 24

(4) Statute of limitations provisions in taxing statutes must

be strictly construed against the government 31

11.

PAGE

(5) Appellant is not estopped from asserting the bar of the
statute of limitations, appellee having at all times been
in possession of all the material facts and having initially-
made an error of law, which error misled the appellant's
predecessors into further errors of law, if they made any
errors of law, but estoppel does not arise from errors or
mutual errors of law 33

(a) The estoppel point 38

(b) The McPherson case 43

Summary 46

Appendix :

Statutes Involved 47

Revenue Act of 1924, Sec. 277(a)(1) 47

Revenue Act of 1926, Sec. 278(d) 47

California Civil Code, Sec. 400 47

111.

TABLE OF AUTHORITIES CITED.

Cases. page

Bowers v. New York & Albany Company, 273 U. S. 346, 349,
47 Supr. Ct. 389, 71 Law. Ed. 676 32

Brandon v. Umqua Lumber Co., 166 Cal. 322, 136 Pac. 62,
47 A. L. R. 1407 17

Buzzard v. Helvering, 77 Fed. (2d) 391 29

California National Supply Co. v. Flack, 183 Cal. 124, 190 Pac.
634 21

Commissioner v. Union Pacific R. R. Co., 86 Fed. (2d) 637.... 41

Crossman v. Vivienda Water Co., 150 Cal. 575, 89 Pac. 335

17, 21, 28, 29

G. M. Standifer Construction Corp. v. Commissioner, 78 Fed.
(2d) 285 18, 19, 43, 45

Grand Central Public Market, Inc. v. U. S., 22 Fed. Supp. 119,
appeal dismissed 98 Fed. (2d) 1023, C. C. A. 9 41

Hanson v. Choynski, 180 Cal. 275, 180 Pac. 816 21

Hawke v. Commissioner, 109 Fed. (2d) 946 41

Helvering v. Brooklyn City Railroad Company, 72 Fed. (2d)
274 38

Helvering v. Salvage, 297 U. S. 106 41

Iberville Wholesale Grocery Co., 15 B. T. A. 645 and 17 B. T.
A. 235 20

Llewellyn Iron Works v. Abbott Kinney Co., 172 Cal. 210, 155
Pac. 986 21

McPherson v. Commissioner, 54 Fed. (2d) 751 37, 43, 44, 45

Newhall v. Western Zinc Mining Co., 164 Cal. 380, 128 Pac.
1040 21

S. F. Scott & Son v. Commissioner, 69 Fed. (2d) 728 41

S. Hirsch Distilling Co, 14 B. T. A. 1073 20

IV.

PAGE

Sanborn Brothers, Successors, etc., 14 B. T. A. 1059 20, 40

Tidewater Oil Co, 29 B. T. A. 1208 38, 41

Union Pacific R. R. Co, 32 B. T. A. 383 41

Union Plate and Wire Co, 17 B. T. A. 1229 20

United States v. Continental National Bank and Trust Com-
pany, 305 U. S. 398 24, 26, 27, 29, 30, 37, 42, 45, 46

United States v. Dickinson, 95 Fed. (2d) 65 41

United States v. Updike, 281 U. S. 489 31, 32

Van Antwerp v. U. S, 92 Fed. (2d) 871 38, 41

Statutes.

Colifornia Civil Code, Sec. 400 16, 27, 29, 40

Code of Civil Procedure, Sec. 416 28

Judicial Code, Sec. 24(1) 1

Judicial Code, Sec. 128 1

Revenue Act of 1924, Sec. 277(a)(1) 22

Revenue Act of 1926, Sec. 278(d) 22

Revenue Act of 1926, Sec. 280(b)(1) 23, 40

Textbooks.

Ballentine on California Corporations, 1931 Ed, p. 476 17

7 California Jurisprudence 137 17

7 California Jurisprudence 138 17, 18, 21

7 California Jurisprudence 176 28

Merten's Law of Federal Income Taxation, 1939, Cum. Suppl.
2511-12-13 38

No. 9813.
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Signal Oil and Gas Company, a corporation,

Appellant,
vs.
United States of America,

Appellee.

BRIEF FOR APPELLANT.

Opinion Below.

The opinion of the District Court of the United States
for the Southern District of California, Central Division
[R. 45 to 47] is unreported.

Jurisdiction.

These appeals involve Federal income tax for the years
1923 and 1924 and were taken from judgments of the
District Court of the United States for the Southern Dis-
trict of California, Central Division, entered December 26,
1940. [R. 61 to 63.] The notices of appeal were filed
March 20, 1941 [R. 64 to 65] pursuant to provisions of
Section 128 of the Judicial Code. The District Court took
jurisdiction under the provisions of Section 24 ( 1) of the
Judicial Code. [R. 2.]

There were two separate proceeding's below which were
consolidated for trial [R. 42] and which have been con-

— 2—

solidated for purposes of this appeal. [R. 65.] One pro-
ceeding, Case No. 1460-Y, involved a suit by the appellee
against the appellant in equity under the trust fund theory
for the 1923 and 1924 Federal income tax of Signal Gaso-
line Company [R. 2 to 9], while the other involved a suit
in equity by the appellee against the appellant under the
trust fund theory for Federal income taxes for the year
1924 of Signal Gasoline Corporation. [R. 9 to 15.]

The appellant, Signal Oil and Gas Company, is a cor-
poration organized under the laws of the State of Dela-
ware, and has its principal place of business at Los An-
geles, California.

Questions Presented.

1. Whether any taxes were due from the Signal Gaso-
line Company or Signal Gasoline Corporation, the only
evidence thereof being purported assessments made in the
name of Signal Gasoline Corporation years after it had
been dissolved and, by virtue of California law, completely
destroyed.

2. Assuming without conceding that the said alleged
assessments were valid, were the suits against appellant
barred by the statute of limitations where appellant in each
case was the transferee of a transferee of the corporation
whose taxes are alleged to be due?

3. If the suits are prima facie barred by the statute of
limitations, is appellant estopped from asserting the bar of
the statute of limitations where the appellee had all the
facts and simply made errors of law?

Statutes Involved.

The statutes involved are set out in the appendix.

— 3—

Statement.

The pertinent facts are set out in the record [pp. 72 to
83 inch] and the exhibits set out in the record [pp. 83 to
100 inch]. The facts in Case No. 1460-Y may be briefly
stated as follows :

On May 1, 1924, Signal Gasoline Company transferred
all its assets to Signal Gasoline Corporation in exchange
for the assumption of outstanding liabilities not exceeding
$51,076.80 including all income taxes that might be due the
Government as of the date of the assignment, plus 400,000
shares of the stock of Signal Gasoline Corporation. On
September 11, 1924, Signal Gasoline Company was dis-
solved and distributed its assets, being the 400,000 shares
of stock of Signal Gasoline Corporation, to its stockholders.
[R. 72 to 73.]

The appellant, Signal Oil and Gas Company, was organ-
ized under the laws of the State of Delaware in 1928 and
by November 30, 1928, had acquired 100% of the stock
of Signal Gasoline Corporation in exchange for its own
stock. [R. 73.]

Signal Gasoline Corporation was liquidated as of Decem-
ber 1st, 1928, and all its assets and liabilities were assigned
in accordance with a certain instrument of conveyance and
the Decree of Dissolution of the Superior Court. [R. 74.]
The Decree of Dissolution set forth that S. B. Mosher, O.
W. March, Ross McCollum, H. M. Mosher, C. Lav.
Larzalere and R. H. Green were the members of the Board
of Directors of the Signal Gasoline Corporation. They
were appointed by the Court as trustees for the stockholders
and creditors of the corporation, with power and direction
to settle all the affairs of the corporation and to distribute

— A—

and convey all the property of said corporation to each of
said stockholders in proportion to the number of shares
owned and held by said stockholders when said distribution
and conveyance was made. [Plaintiff's Exhibit 2; R. 87-
88.] On December 14, 1928, the said trustees of Signal
Gasoline Corporation executed a notice re conveyance of
assets which recited the court decree and the appointment
of the statutory trustees, and which recited that the Signal
Oil and Gas Company was the owner of all the outstanding
stock of Signal Gasoline Corporation and was entitled to
the distribution of all the assets of that company. Said
notice did assign to the Signal Oil and Gas Company all
the assets of the Signal Gasoline Corporation subject to
all the outstanding liabilities and to the payment of income
taxes that might be due to the Government covering op-
erations of the dissolved corporation during the current
year, and all sums that might be found clue covering in-
come taxes for previous years. [Plaintiff's Exhibit 2; R.
83-84.]

The original income tax return for 1923 of Signal Gaso-
line Company was filed on behalf of that company on
March 15, 1924, and an amended return for that year was
filed May 13, 1925. A tentative return for 1924 was filed
March 16, 1925, and the final return for 1924 was filed
May 13, 1925. [R. 74.]

On October 2, 1928, and again on December 28, 1929,
the Commissioner of Internal Revenue addressed and
mailed a letter to the Signal Gasoline Corporation setting

— 5—

forth certain transferee deficiencies; the letter of October
2, 1928, claiming a deficiency of $468.33 for 1923 to be
due from Signal Gasoline Corporation as transferee of the
assets of Signal Gasoline Company ; the letter of December
28, 1929, claiming a deficiency of $2672.53 for the period
ended December 11, 1924, to be due from Signal Gasoline
Corporation as transferee of the assets of Signal Gasoline
Company. [R. 74.]

On November 19, 1928, Signal Gasoline Corporation
filed with the United States Board of Tax Appeals an ap-
peal from the deficiency proposed in the letter of October
2, 1928. This petition was docketed with the Board under
No. 41532. [R. 75.]

On February 24, 1930, a petition was filed in the name
of Signal Gasoline Corporation, appealing from the de-
ficiency proposed in the letter of December 28, 1929. This
petition was docketed with the United States Board of Tax
Appeals under No. 47620. This petition, in its first para-
graph stated that : "The petitioner is a dissolved corpora-
tion acting through its statutory trustees * * *". The
verification of the petition was signed by the six persons
who had been appointed by the Court as statutory trustees
of Signal Gasoline Corporation, and the verification stated
that these six persons were "* * * the statutory trustees
of Signal Gasoline Corporation, a dissolved corporation
* * *". [R. 75.]

Both of the petitions mentioned above were signed by
Robert N. Miller and Melvin D. Wilson as attorneys for
the petitioners. [R. 75.]

These matters were pending before the Board of Tax
Appeals from November 19, 1928, and February 24, 1930,
respectively, until February 16, 1932. [R. 75.] No sub-
stitution of parties was ever made and no motion of such
substitution was ever made by either of the parties though
the Commissioner of Internal Revenue was informed of the
dissolution of Signal Gasoline Corporation in December of
1928 as follows [R. 79] :

1. On May 13, 1929, a corporation income tax return
for 1928 was filed with the Collector of Internal Revenue
at Los Angeles, California, on behalf of the Signal Gaso-
line Corporation. In said return it was stated in affiliation
schedule No. 3 thereof, that the Signal Gasoline Corpora-
tion had been dissolved in December of 1928. The return
was signed by S. B. Mosher as president, and O. W.
March as treasurer. [R. 82.]

2. On November 20, 1929, a power of attorney was ex-
ecuted whereby certain attorneys were authorized to repre-
sent Signal Gasoline Corporation, a dissolved corporation,
before the Treasury Department in connection with the
tax liabilities of said corporation for the calendar years
1926 and 1927. Said power of attorney stated that the
Signal Gasoline Corporation was a dissolved California
corporation acting through its statutory trustees. It was
signed by Signal Gasoline Corporation, by S. B. Mosher
and five other persons, and the verification stated that the
persons who had signed it were the statutory trustees of
the above named dissolved corporation. [Plaintiff's Ex-
hibit 7; R. 95-96.]

3. On February 24, 1930, the petition to the Board of
Tax Appeals was filed as indicated above, stating that Sig-

— 7—

nal Gasoline Corporation was a dissolved corporation acting
through its statutory trustees, and the verification was
signed by six persons who stated that they were the statu-
tory trustees of Signal Gasoline Corporation, a dissolved
corporation. [R. 75.]

4. In a Revenue Agent's report dated August 26,
1930, it was stated that Signal Gasoline Corporation had
distributed all its assets to its sole stockholder, Signal Oil
and Gas Company, upon its dissolution in December of
1928. [R. 82.]

5. In a letter dated March 30, 1931, from the Commis-
sioner of Internal Revenue, addressed to the Signal Gaso-
line Corporation, which letter was a 60-day letter proposing
additional taxes for the year 1928, it was stated that the
Signal Gasoline Corporation had been dissolved in Decem-
ber, 1928. [R. 82-83.]

6. Except for the matters set out above, no other cor-
respondence with the Collector of Internal Revenue was
filed by and on behalf of Signal Gasoline Company or Sig-
nal Gasoline Corporation after their dissolution and prior
to February 16, 1932, excepting as follows:

(a) On January 20, 1932, a letter to the Commissioner
was written and signed " Signal Gasoline Corporation, by
J. H. Rounsavell, Comptroller" advising the Commissioner
to change his records so that all correspondence relative to
the income tax matters of Signal Gasoline Corporation for
1924 to 1928 inclusive would be sent to 1200 Signal Oil
Building, 811 West Seventh Street, Los Angeles, Cali-
fornia. [R. 81.]

(b) On January 20, 1932, a similar letter was written
signed "Signal Gasoline Company, by J. H. Rounsavell,

Comptroller" with respect to the Signal Gasoline Company
for 1922 to 1924. [R. 81.]

(c) On January 20, 1932, a similar letter was written
and signed by Signal Gasoline Company, Inc., by J. H.
Rounsavell, Comptroller, with respect to the 1925, 1926,
1927 and 1928 taxes of the Signal Gasoline Company,
Inc. [R. 81.]

(d) On July 27, 1931, a letter signed by Signal Gaso-
line Corporation, by J. H. Rounsavell, Comptroller, was
mailed to the Collector at Los Angeles, stating that there
was pending before the Board of Tax Appeals the ques-
tion of whether Signal Gasoline Corporation was liable
for the 1923 income tax liability of Signal Gasoline Com-
pany. [R. 81-82.]

On February 16, 1932, the Board of Tax Appeals
purported to affirm the rulings of the Commissioner of
Internal Revenue in asserting the deficiencies appealed
from in petitions numbered 41532 and 47620, relating to
the income taxes of the Signal Gasoline Company. Said
decision of the Board is contained in an opinion reported
in 25 B. T. A. 532. [R. 75.]

On September 10, 1932, the Commissioner purported
to assess the Signal Gasoline Corporation as a trans-
feree of the Signal Gasoline Company for the above
described tax liabilities of Signal Gasoline Company in the
amounts and for the taxable periods as follows:

For the taxable year 1923, $468.33 plus interest of
$227.96; for the taxable period ended September 11,
1924, $2672.53 plus interest of $1,200.70. [R. 76; Plain-
tiffs Exhibit J; R. 88-89.]

— 9—

By reason of the dissolution of the Signal Gasoline Cor-
poration and the disbursement of all its assets to its
statutory trustees as above set forth, Signal Gasoline Cor-
poration was and is left without any money, assets or
property of any kind, with which to pay said taxes and
interest claimed herein by the United States. The assets
which were acquired by the appellant, Signal Oil and Gas
Company, as sole stockholder of Signal Gasoline Corpo-
ration as heretofore shown were far in excess of the
taxes and interest prayed for in the complaint herein.
[R. 79.]

Due demand for the payment of taxes and interest
prayed for in the complaint herein has been made upon
the Signal Oil and Gas Company but no portion thereof
has been paid. [R. 79.]

At all times herein mentioned and considered, sub-
stantially the same persons were officers and directors or
statutory trustees of the Signal Gasoline Corporation, as
were the officers and directors of the Signal Oil and Gas
Company and officers and directors or trustees of the Sig-
nal Gasoline Company. [R. 79.]

An offer to compromise the taxes here involved, ac-
knowledged October 31st, 1932, was filed shortly there-
after. It was signed by the Signal Gasoline Corpora-
tion, by S. B. Mosher, H. M. Mosher, O. W. March, R.
H. Green, and C. Lav. Lazalere. The acknowledgment
stated that the above named persons were the statutory
trustees of Signal Gasoline Corporation, a dissolved cor-
poration. In the body of the offer it was stated that
Signal Gasoline Corporation was dissolved December 12,
1928. [R. 80.]

—10—

A similar offer, acknowledged January 23, 1933, and
filed shortly thereafter, stated that Signal Gasoline Cor-
poration was dissolved December 12, 1928. It was signed
by the Signal Gasoline Corporation, by Melvin D. Wilson,
Attorney-in-Fact. In the acknowledgment it was stated
that Signal Gasoline Corporation was a dissolved corpo-
ration. [R. 80.]

No assessment was ever made against Signal Oil and
Gas Company for 1923 and 1924 tax liabilities of the
Signal Gasoline Company. No assessment was ever made
against the Signal Gasoline Company for the said 1924
tax liability of Signal Gasoline Company. A purported
assessment against the Signal Gasoline Company was made
July 3, 1931, in the amount of $468.33 plus interest for its
said tax liability for the calendar year 1923. [R. 82.]

The appellee brought its suit against appellant on Sep-
tember 9, 1938, at the direction of the Attorney Gen-
eral, with the sanction and at the request of the Commis-
sioner of Internal Revenue. [R. 2, 3.]

This case, Docket No. 1460-Y, was tried before the
Honorable Leon R. Yankwich on January 16, 1940, upon
a written stipulation of facts and upon documentary evi-
dence being introduced into evidence. [R. 33-41.]

On July 27, 1940, the Judge of the District Court filed
his minute order finding for the appellee. [R. 45-46.]
The findings of fact and conclusions of law was signed
by the District Judge on December 26, 1940, and filed
the same day. [R. 48-61.] Judgment in favor of the
appellee in the amount of $4,569.52 together with interest
at the rate of 12% per annum from September 10th,
1932, to October 24, 1933, and interest at the rate of
6% per annum from October 24, 1933, to date of pay-

—11—

ment, together with costs in the sum of $27.14, was
signed and entered on the 26th day of December, 1940.
[R. 61-63.]

The facts in case No. 1461-Y may be briefly stated as
follows :

All the facts stated above with respect to case No.
1460-Y relative to the dissolution of Signal Gasoline Cor-
poration, the distribution of its assets to the statutory trus-
tees, the conveyance by the statutory trustees of the assets
to appellant, the various notices given to the Commissioner
by the statutory trustees that Signal Gasoline Corporation
had been dissolved, the fact that the dissolution of Signal
Gasoline Corporation left it unable to pay any tax liabili-
ties, and any other statements made above which are
pertinent to this case, are incorporated herein as fully as
though herein set forth at this point.

Signal Gasoline Corporation filed its income tax return
for the calendar year 1924 on or about May 13, 1925.
[R. 76.]

On December 3, 1928, Signal Gasoline Corporation
signed and filed Form 852 which is entitled "Consent
Fixing Period of Limitation Upon Assessment of Income
and Profits Tax"; that document purported to give the
Commissioner until December 31, 1929, in which to assess
additional income taxes for 1924 against Signal Gasoline
Corporation. [Plaintiff's Exhibit 4; R. 91 -76.1

On December 12, 1928, the Signal Gasoline Corpora-
tion was dissolved as stated heretofore.

On December 28, 1929, the Commissioner of Internal
Revenue addressed and mailed a letter to Signal Gasoline
Corporation. This letter proposed an assessment of ad-

—12—

ditional tax liability against the Signal Gasoline Corpora-
tion for the period May 1st to December 3 1st, 1924, in
the amount of $14,137.05. [R. 76.]

On February 24, 1930, a petition was filed with the
Board of Tax Appeals for a redetermination of the 1924
deficiency proposed in the Commissioner's letter dated
December 28, 1929, above referred to; that said proceed-
ing was therein given Docket No. 47621 ; that said peti-
tion was filed under the name of Signal Gasoline Corpora-
tion; that the petition stated in its first paragraph that:
"The petitioner is a dissolved California corporation act-
ing through its statutory trustees * * *"; that the
verification of the petition was signed by six persons and
the verification stated that these six persons were "* * *
the statutory trustees of Signal Gasoline Corporation, a
dissolved corporation * * *" ; the petition was signed
by Robert N. Miller and Melvin D. Wilson as attorneys
for the petitioner. [R. 77-78.]

Although the Commissioner of Internal Revenue had
the various notices given him by the statutory trustees
that Signal Gasoline Corporation had been dissolved
December in 1928, he made no motion for substitution
of the parties during the time the case was pending be-
fore the Board of Tax Appeals. [R. 79.]

On March 15, 1932, the Board of Tax Appeals pur-
ported to affirm the ruling of the Commissioner of In-
ternal Revenue in asserting the deficiency appealed from
in Docket No. 47621. Said decision of the Board is
contained in an opinion reported in 25 B. T. A. 86 L
[R. 78.]

On October 1, 1932, the Commissioner of Internal
Revenue purported to assess the Signal Gasoline Corpo-

—13—

ration for its tax deficiency for the calendar year 1924 in
the principal amount of $14,137.05 plus interest of
$6,080.77. [R. 78; Plaintiff's Exhibit 9; R. 97-98.]

Due demand for the payment of the taxes and interest
prayed for in this case has been made upon appellant, but
no portion thereof has been paid. [R. 79.]

No assessment was ever made against Signal Oil and
Gas Company for the tax liability of Signal Gasoline Cor-
poration for the year 1924. [R. 82.]

The appellee brought its suit against appellant on Sep-
tember 9, 1938, at the direction of the Attorney General,
with the sanction and at the request of the Commissioner
of Internal Revenue. [R. 9-16.]

This case, Docket No. 1461-Y, was tried before the
Honorable Leon R. Yankwich on January 16, 1940, upon
a written stipulation of facts and upon documentary evi-
dence being introduced into evidence. [R. 33-41.]

On July 27, 1940, the Judge of the District Court filed
its minute order finding for the appellee. [R. 46-47.] The
findings of fact and conclusions of law was signed by the
District Judge on December 26, 1940, and filed the same
day. [R. 48-61.] Judgment in favor of the appellee in
the amount of $20,217.82 together with interest at the rate
of 12% per annum from October 1, 1932, to October
24, 1933, and interest at the rate of 6% per annum from
October 24, 1933, to the date of payment, and costs in the
amount of $27.06.

—14—
Specification of Errors Relied Upon.

1. There was no evidence introduced at the trial show-
ing that the taxes sued on were due from anyone. The
alleged assessments relied on by the appellee for that
purpose were void and prove nothing, having been pur-
portedly made long after the corporation against which
they were supposed to have been made had been dissolved
and utterly destroyed by its dissolution. Said alleged
assessments were based upon alleged proceedings in the
Board of Tax Appeals wherein the appellee was guilty of
laches in that it did not move for a dismissal or substitu-
tion of the petitioner although long having knowledge
that the petitioner had been dissolved and destroyed by
its dissolution.

2. The suits by appellee were barred by the statute of
limitations as they were not brought within four years
of the filing of the returns of the corporations whose
taxes were involved and no assessment was made against
the appellant, but the appellee was relying upon a six-year
period within which to sue appellant after alleged assess-
ments against a prior transferee, but the alleged assess-
ments against the prior transferee were invalid for the
reason stated in Point 1, and hence do not give a six year
period for suit, and even if the assessments against the
prior transferee had been valid, they would not give appel-
lee six years within which to sue subsequent transferees.

3. Appellant is not estopped from asserting the bar of
the statute of limitations, appellee having at all times been

—15—

in possession of all the material facts and having
initially made an error of law which error misled the
appellant's predecessors into further errors of law, if they
made any errors of law, but estoppel does not arise from
errors or mutual errors of law.

4. The judgments against appellant should be reversed.
[R. 101-103.]

Summary of Argument.

The specification of errors relied upon also constitutes
a brief summary of the argument.

—16—

ARGUMENT.

1. No Evidence Was Introduced at the Trial Proving
That the Taxes Sued Upon Were Due From Any-
one. The Alleged Assessments Relied Upon by
the Appellee for That Purpose Being Void.

The appellee brought suits in equity against appellant to
collect from appellant taxes alleged to be owing from
other corporations now dissolved.

Appellee, of course, has the burden of proving all the
material allegations of its complaints. The appellee, in
its complaint, did not even allege that the taxes were due
from anyone.

Appellee did allege that assessments had been made
against Signal Gasoline Corporation and appellee relied
on those assessments as proving that the taxes were due.
As will be hereinafter shown, the alleged assessments
against Signal Gasoline Corporation were void and raise
no presumption that the taxes sought to be recovered
herein were due from Signal Gasoline Company, Signal
Gasoline Corporation, Signal Oil and Gas Company, or
from anyone else.

As shown in the statement of facts, Signal Gasoline
Corporation was dissolved in December of 1928. The
alleged assessments relied on by the appellee were not made
until September 10, 1932, and October 1st, 1932, respec-
tively. [R. 75-78.]

Thus the alleged assessments were made nearly four
years after Signal Gasoline Corporation had been dis-
solved. Said alleged assessments were absolutely void
and of no effect whatsoever.

In December of 1928, when Signal Gasoline Corpora-
tion was dissolved, Section 400 of the Civil Code of the

—17—

State of California read as shown in the appendix to this
brief. It will be noted that under such section the last
directors ordinarily became the statutory trustees for the
creditors and stockholders and had full power to settle
any of the affairs of the corporation, collect and pay out-
standing debts, sell the assets, and distribute the proceeds
to the stockholders. It will be noted that no provision was
made for the extension of the corporate existence what-
soever.

Under this provision of the Civil Code, the dissolution
of the corporation absolutely destroyed it. In Ballentine
on California Corporations, 1931 Edition, P. 476, this
proposition is set forth as follows :

"Corporations dissolved prior to August 14, 1929,
are not governed by Section 399, Civil Code, and their
corporate existence came to an end under the former
Code provision. When a corporation was dissolved,
the persons constituting the last Board of Directors
became the statutory trustees ex officio of the defunct
corporation and were charged with the duty of wind-
ing up its affairs, even though the technical legal title
may have vested in the shareholders. Pending ac-
tions against the corporation abated and the directors,
as trustees, had to be substituted. As to such cor-
poration, the effect of dissolution was to terminate
the legal entity and render the corporation incapable
of acting, or of suing, or being sued."

The above quotation is based upon the California Su-
preme Court cases of Crossman v. Vivienda Water Com-
pany, 150 Cal. 575, 89 Pac. 335, and Brandon v. Umqua
Lumber Company, 166 Cal. 322, 136 Pac. 62, 47 A. L. R.
1407. See also 7 Cal. Jur. 137-138.

—18—

In 7 Cal. Jitr. 138, the following statement appears:

"A dissolved corporation is incapable of suing or
being sued as a corporate body or in its corporate
name, there being no one who can appear and act for
the corporation, all actions pending against it are
abated, and any judgment attempted to be given
against it is void — a mere nullity, except as other-
wise as provided by statute. Such a void judgment,
therefore, is no bar to a subsequent action against
the trustees of the corporation."

The above principle of law has been recognized by the
United States Circuit Court of Appeals for the Ninth Cir-
cuit in G. M. Standifer Construction Corporation v. Com-
missioner, 78 Fed. (2d) 285. In that case an Oregon
corporation had dissolved on August 30, 1927, and under
the laws of Oregon it continued to exist for five years
for the purpose of winding up its affairs. On November
1, 1930, the Commissioner of Internal Revenue sent it a
60-day letter notifying it of a deficiency in its 1928 income
tax. On December 29, 1930, the corporation filed with
the Board of Tax Appeals a petition for redetermination.
On October 2, 1933, after the expiration of the five-year
period, the matter was heard by the Board and on June
7, 1934, the Board rendered its decision, to review which
a petition was filed in the United States Circuit Court of
Appeals for the Ninth Circuit, on October 29, 1934. The
Circuit Court, at 78 Fed. (2d), page 286, said:

"The general effect of the dissolution of a corpora-
tion is to put an end to its corporate existence for
all purposes whatsoever, and to extinguish its power
to sue or be sued, but, if the law of the state of in-
corporation so provides, its existence may continue
for a specified period after dissolution for the pur-

—19—

pose of winding up its affairs, and during that ex-
tended period of corporate life, it may sue or be sued.
Thompson on Corporations, Third Edition, Vol. 8,
Sees. 6505, 6530; 14a C. J. 1200, 1201; 7 R. C. L.
735, 743. The rule is stated as follows in Okla-
homa Natural Gas Company v. State of Oklahoma,
273 U. S. 257, 259, 47 Sup. Ct. 391, 392, 71 L. Ed.
634:

" Tt is well settled that at common law and in the
Federal jurisdiction a corporation which has been
dissolved is as if it did not exist, and the result of the
dissolution cannot be distinguished from the death of
a natural person in its effect. (Citing cases.) It
follows therefore that, as the death of the natural
person abates all pending litigation to which such a
person is a party, dissolution of a corporation at
common law abates all litigation in which the corpo-
ration is appearing either as plaintiff or defend-
ant. To allow actions to continue would be to
continue the existence of the corporation pro hac
vice. But corporations exist for specific purposes
and only by legislative act, so that if the life of the
corporation is to continue even only for litigating
purposes, it is necessary that there should be some
statutory authority for the prolongation. The mat-
ter is really not procedural or controlled by the rules
of the court in which the litigation pends. It con-
cerns the fundamental law of the corporation enacted
by the State which brought the corporation into
being/ "

This Court, in the Standifer case, at page 286, then said:

"Here, the five-year period expired, the corporation
became defunct, and the proceeding before the Board
of Tax Appeals abated on August 30, 1932, twenty-
one months before the Board rendered its decision.

—20—

The petition filed in this court in the name of the
defunct corporation presented nothing for review. The
only thing we can do with such a petition is to dis-
miss it."

In that case, the proposed deficiency against the de-
funct corporation of course became abated and a nullity
and it was incumbent upon the Commissioner to pro-
ceed against the transferees of the assets of the corpora-
tion subject to all the defenses they might raise.

In other tax cases, the principle has also been recog-
nized that a corporation whose legal existence has been
completely terminated cannot have a valid assessment,
order, or judgment made against it. (Sanborn Brothers,
Successors, etc., 14 B. T. A. 1059; Union Plate and Wire
Company, 17 B. T. A. 1229; Iberville Wholesale Grocery
Company, 15 B. T. A. 645 and 17 B. T. A. 235; 5. Hirsch
Distilling Company, 14 B. T. A. 1073.)

In the case of vS\ Hirsch Distilling Company, supra,
decided January 9, 1929, a Missouri corporation was in-
volved. The statutes of Missouri were like the statutes of
California in effect at the time Signal Gasoline Corpora-
tion was dissolved. There was no provision for con-
tinuing the corporate existence for any purpose, but the
last directors were the statutory trustees for the creditors
and stockholders. The Board, in discussing the effect
of this dissolution of the Missouri corporation, said:

"In Scanlan v. Crawshaw, 5 Mo. App. 337, it was
held that a judgment against the corporation that
had ceased to exist at the time it was rendered was a
nullity and that an order to issue execution on such
judgment against the stockholder was void."

—21—

The Board concluded that the S. Hirsch Distilling
Company ceased to exist at the time of its dissolution,
namely, June 20, 1920, and that all the rights which it,
as a corporation, had theretofore had were completely ex-
tinguished; that it no longer had any right to do anything
and no legal existence or status to institute the proceed-
ing before the Board (in 1926), and the Board's de-
termination of the deficiency under such circumstances
would be a nullity, and accordingly, the Board, on its
own motion, held that it had no jurisdiction.

As noted above, under California law, a judgment at-
tempted against a corporation dissolved prior to July 14,
1929, is void and a mere nullity. (7 Cal. Jur. 138; Cali-
fornia National Supply Company v. Flack, 183 Cal. 124,
190 Pac. 634; Hanson v. Choynski, 180 Cal. 275, 180 Pac.
816; Llewellyn Iron Works v. Abbott Kinney Co., 172
Cal. 210, 155 Pac. 986; Newhall v. Western Zinc Mining
Co., 164 Cal. 380, 128 Pac. 1040; Crossman v. Vivienda
Water Company, 150 Cal. 575, 89 Pac. 335.)

It seems clear therefore that the alleged assessments
against Signal Gasoline Corporation in 1932 were an ab-
solute nullity as the corporation had been destroyed by its
dissolution in 1928. Consequently, the void assessments
do not prove that the alleged tax was due. The taxes
involved were never assessed against appellant Signal Oil
and Gas Company.

Since there is no evidence that the tax was due from
anyone, the appellee cannot collect the said alleged tax
from anyone.

—22—

2. The Alleged Assessments Being Void Do Not
Start a Six- Year Period in Which the Appellee
Could Sue Transferees.

The alleged taxes involved in these proceedings related
to the years 1923 and 1924 for which returns were filed
in 1924 and 1925. The statutory time for bringing suit
against the taxpaying corporation or anyone else based on
the returns was four years after the returns were filed.
(Section 277 (a) (1) of the Revenue Act of 1924.) It
is obvious, therefore, that the appellee was not suing the
appellant under that section as the suits were not brought
until 1938.

No assessment has been made against Signal Oil and
Gas Company (for the alleged taxes of its predecessors)
and hence the appellee could not have been relying upon
Section 278 (d) of the Revenue Act of 1926 which gave
the Commissioner six years after an assessment within
which to collect tax from the entity assessed.

The appellee was relying upon a six-year period for
bringing suit against transferees, under the trust fund
theory, based upon alleged assessments against the Signal
Gasoline Corporation. (Section 278 (d) of the Revenue
Act of 1926.) In other words, the appellee relied upon
assessments made in September and October of 1932 and
brought the suits just within six years from the date of
said purported assessments.

The assessments on which the appellee relied for start-
ing the six-year period for bringing suit were, as shown

—23—

above, absolutely void. Consequently, they did not give
the Government six years within which to sue anyone. No
argument or citation of authority is necessary to support
the proposition that legal rights cannot be based upon a
nullity.

The alleged assessments on which the appellee was rely-
ing to commence the six-year period of limitation for
bringing suit being void, the appellee is relegated to the
provisions of law which give it four years after the returns
for 1923 and 1924 were filed within which to sue alleged
transferee. Since the returns were filed in 1924 and
1925, the time for filing suit expired in the spring of
1928 and 1929. The suits having been brought in 1938
are barred by the statute of limitations.

On May 13, 1929, on November 20, 1929, and on
February 24, 1930, the Commissioner was advised that
Signal Gasoline Corporation had been dissolved. Under
Section 280 (b) (1) of the Revenue Act of 1926, appellee
had until March 15, 1930, within which to assess the
trustees of Signal Gasoline Corporation or the Signal
Oil and Gas Company, as the transferee. The appellee's
failure to do so was due to its erroneous interpretation
of the California law respecting dissolved corporations and
not to any fault of the trustees or appellant. The present
proceedings are barred by the statute of limitations.

—24—

3. If, Contrary to Appellant's Contention, the Alleged
Assessments Are Held to Be Valid, They Were
Made Against the First Transferees of the Tax-
paying Corporations and Said Assessments Did
Not Give the Appellee Six Years in Which to Sue
Subsequent Transferees.

In Case No. 1460-Y, the facts clearly show that the
taxes involved were the 1923 and 1924 taxes of Signal
Gasoline Company; that this company dissolved, dis-
tributed its assets to Signal Gasoline Corporation; that
Signal Gasoline Corporation dissolved and its assets
eventually, after passing through its statutory trustees,
came over to appellant, Signal Oil and Gas Company.

It is obvious, therefore, that Signal Oil and Gas Com-
pany is a transferee of the transferee of the assets of Sig-
nal Gasoline Company, the taxpaying corporation.

The Government is relying on a six-year period based
upon an assessment made upon the first transferee to
sue the second transferee. But the Supreme Court, in
United States v. Continental National Bank and Trust
Company, 305 U. S. 398, very clearly and definitely held
that a timely assessment against the first transferee of the
assets of the taxpayer did not give the Government six
years in which to sue the second transferee of the assets
of the taxpayer.

That case is, therefore, squarely in point and directly
bars the action in the case of 1460-Y.

—25—

The important facts in the two cases are very similar
and are as follows:

Description Continental Case Case 1460-Y

Taxable years involved: 1920, 1923, 1924

Character of original tax-
payer : Corporation Corporation

Relation of Appellant to original

taxpayer : Transferee of a Transferee T. of a T.

Did first transferee file a
petition with the Board of
Tax Appeals: Yes Yes

Was an alleged assessment made
against the first transferee?
Date Yes-2-14-31 Yes-9- 10-32

Was suit brought against second
transferee without assessment
against the defendant? Date Yes-5- 6-32 Yes-9- 9-38

Period between filing of return
of original taxpayer and
bringing of suit in years 11 13-14

Period between assessment on
first transferee and suit
against second transferee in
years 1^4 6

It is well established, therefore, that even if the assess-
ment against Signal Gasoline Corporation for the taxes
alleged to be due from Signal Gasoline Company for the
years 1923 and 1924 was valid, that assessment, being
on the first transferee, did not give the Government six

—26—

years in which to sue the second transferee, namely,
appellant.

At the time appellee brought its suit, an assessment
against the first transferee was thought to give the Gov-
ernment six years in which to sue subsequent transferees.
The appellee doubtless relied on this misapprehension of
the law, as it waited five years, eleven months and twenty-
nine days before bringing suit. If appellee had not made
that mistake of law, it might have taken some other timely
action. But appellee did make that mistake of law, and is
now casting about, trying to fasten the blame on appel-
lant, by pleading estoppel.

As to the facts in Case No. 1460-Y, therefore, it is
clear that the Supreme Court's decision in U. S. v. Conti-
nental Nat. Bk. & Tr. Co., is squarely in point, and bars
the suit.

In Case No. 1461-Y, the Supreme Court's decision in
U. S. v. Continental Bank and Trust Company also bars
the complaint but the facts do not stand out quite so
clearly.

In this case the tax involved was the 1924 tax of Signal
Gasoline Corporation. That corporation was dissolved
in December of 1928 but the Commissioner of Internal
Revenue purported to make an assessment against Signal
Gasoline Corporation in October of 1932.

The appellee thought that it had six years from the
alleged assessment in October of 1932 against Signal
Gasoline Corporation to sue appellant.

Now it is not entirely clear as a matter of law whether
the alleged assessment made in October, 1932, was pur-
portedly made against Signal Gasoline Corporation or

—27—

against the statutory trustees of Signal Gasoline Cor-
poration.

If the alleged assessment was purportedly made against
Signal Gasoline Corporation, then said alleged assessment
was void, as Signal Gasoline Corporation had been de-
stroyed in 1928 on its dissolution, and the void assess-
ment would not start a six-year period of limitations
within which the Government could sue the transferees
and this suit would be barred.

If the appellee contends that the assessment was really
against the statutory trustees of the dissolved Signal Gaso-
line Corporation, then appellant contends that the suit is
barred because the statutory trustees were the first trans-
ferees of Signal Gasoline Corporation, and an assessment
against them as first transferees does not give the Gov-
ernment six years within which to sue appellant who was
the second transferee of Signal Gasoline Corporation.
(U. S. v. Continental National Bank and Trust Company,
305 U. S. 398.)

Appellant suggests that the alleged assessment made
in October, 1932, in the name of Signal Gasoline Cor-
poration was really made against the statutory trustees.
Section 400 of the Civil Code of California as it stood in
1928 when Signal Gasoline Corporation was dissolved,
provided in part as follows:

"* * * Such trustees shall have authority to sue
for and recover the debts and property of the cor-
poration, and shall be jointly and severally liable to
the creditors and stockholders or members, to the ex-
tent of its property and effects that shall come into
their hands." (Emphasis supplied.)

—28—

It is thus indisputable that the trustees were the first
transferees of the assets of Signal Gasoline Corporation.

Section 416 of the Code of Civil Procedure of the State
of California as it stood in 1928 and as it stands today,
reads in part as follows:

"In all cases where a corporation has forfeited its
charter or right to do business in this state, the per-
sons who become the trustees of the corporation and
of its stockholders or members may be sued in the
corporate name of such corporation in like manner
as if no forfeiture had occurred and from the time
of the service of the summons and a copy of the com-
plaint in a court action, upon one of said trustees, or
of the completion of the publication when service by
publication is ordered, the court is deemed to have
acquired jurisdiction of all said trustees, and to have
control of all subsequent proceedings * * *" (Em-
phasis supplied.)

The jurisdiction which the court acquires is not juris-
diction of the dissolved corporation, however, but only of
the trustees. (Crossman v. Vivienda Water Company,
supra, and 7 Cal. Jur. 176.)

Consequently, the deficiency letter issued on December
28, 1929, in the name of Signal Gasoline Corporation was
really issued to the trustees of the dissolved corporation
and the petition filed in the name of Signal Gasoline Cor-
poration was really the petition of the trustees. The Board
proceedings and assessment were therefore probably valid
as to the trustees but not as to the corporation.

The Government had six years from October 1, 1932,
to sue the trustees, but did not do so. The suit against

—29—

the appellant herein, the second transferee, was not
brought within four years of the filing of the return and
is barred by the statute of limitations, the assessment
against the trustees (the first transferees) not giving the
Government six years within which to sue subsequent
transferees. (U. S. v. Continental Bank and Trust Com-
pany, supra.)

In Buzzard v. Helvering, 77 Fed. (2d) 391, the statu-
tory trustees of a dissolved California corporation filed
an appeal with the Board of Tax Appeals, as trustees, but
the petition was filed in the name of the dissolved com-
pany. The Court, after citing Section 400 of the Civil
Code of California and Crossman v. Vivienda Water Com-
pany, supra, at page 395, said:

«* * * -p^e appeai from the deficiency notice, we
think, was an appeal by the trustees of the lumber
company, however it may have been styled in the
hearings or in the pleadings. "

Again at page 395 the court said:

"* * * and we think it also clear that the de-
cision of the Board, sustaining the deficiency notice
of the Commissioner, was no more or less than an
ascertainment of the validity of the debt of the lum-
ber company for which, under the tax statutes, peti-
tioners, as trustees, were liable and bound to account
under the tax laws and under the California statute. "

Also on the same page the court said:

"In this view we hold (1) * * *; (2) that the
petition filed April 11, 1925, by the trustees for a
redetermination of the deficiencies, however styled,
was in legal effect an appeal by the trustees appointed
to administer the affairs of the dissolved corpora-
tion; * * *"

—30—

Similarly in the case at bar the appeal filed by the
statutory trustees of Signal Gasoline Corporation, though
styled in the name of the corporation, was really an appeal
by the trustees.

Since the appeal was filed by the trustees, the subse-
quent assessment was also against the trustees.

But as shown by the decision of the Supreme Court of
the United States in U. S. v. Continental Bank and Trust
Company, supra, an assessment made against the statutory
trustees as first transferees does not give the Government
six years within which to sue the second or later trans-
ferees, namely, the appellant herein.

It is apparent, therefore, that the deficiency letter issued
by the Commissioner of Internal Revenue addressed to
Signal Gasoline Corporation after that corporation has
been dissolved and under California law utterly destroyed,
was really addressed to the statutory trustees as trans-
ferees, and the petition they filed was in the capacity as
trustees and transferees.

Under that view of the case, the proceeding before the
Board and the assessment were valid as to the trustees,
but since this was an assessment against the first trans-
ferees of the taxpayer corporation, Signal Gasoline Cor-
poration, that assessment did not give the Government
six years within which to sue the second transferee,
namely, Signal Oil and Gas Company. (U. S. v. Conti-
nental Bank and Trust Company, supra.)

Summarizing as to Case No. 1461-Y, it seems clear
from the law and the facts that if the purported proceed-
ing before the Board and the purported assessment related
to Signal Gasoline Corporation, they were entirely null

—31—

and void and there is no evidence that any additional tax
is due, as that corporation had been dissolved long before
the purported assessment was made. Consequently, the
appellee cannot base a six year period to sue appellant upon
such void assessment.

On the other hand, if the proceedings before the Board
and the assessment related to the statutory trustees of
Signal Gasoline Corporation, a dissolved corporation, then
such assessment was probably valid and is evidence that
the additional tax is owing but such assessment was
against the first transferees of Signal Gasoline Corpora-
tion and this assessment does not give the Government
six years within which to sue the subsequent transferee,
namely, appellant.

Consequently, the complaint in Case No. 1461 -Y is
barred by the statute of limitations.

4. Statute of Limitations Provisions in Taxing Stat-
utes Must Be Strictly Construed Against the
Government.

In United States v. Updike, 281 U. S. 489, the Supreme
Court of the United States, p. 496, said:

"In any event, we think this is a fair interpretation
of the clause, and the one which must be accepted,
especially in view of the rule which requires taxing
acts, including provisions of limitations embodied
therein, to be construed strictly in favor of the tax-
payer. Bowers v. New York & Albany Company,
273 U. S. 346, 349, 47 Supr. Ct. 389, 71 Law Ed.
676."

—32—

In Bowers v. New York & Albany Lighterage Com-
pany, supra, the court, among other things, said at page
390:

"The provision (limitation) is a part of the taxing
statute; and such laws are to be interpreted liberally
in favor of the taxpayers. Eidman v. Martinez, 184
U. S. 578, 583, 22 S. Ct. 515, 46 Law. Ed. 697;
Shwab v. Doyle, 258 U. S. 529, 536, 42 S. Ct. 391,
66 Law. Ed. 746, 26 A. L. R. 1454."

If there is any doubt about the statute of limitations
point in this case, the doubt must be resolved in favor
of the taxpayer and not in favor of the Government.
There is nothing inequitable in pleading the statute of
limitations; certainly nothing inequitable in pleading the
statute of limitations when the appellee brings suit in
1938 on a presumed assessment made in 1932 for the
1923 and 1924 taxes of other corporations whose assets
passed through the hands of three successive transferees
before reaching the appellant.

As said by the Supreme Court in United States v.
Updike, 281 U. S. 489, 495:

"In such case, to allow an indefinite time for pro-
ceeding to collect the tax would be out of harmony
with the obvious policy of the act to promote repose
by fixing a definite period after assessment within
which suits and proceedings for the collection of
taxes must be brought."

—33—

5. Appellant Is Not Estopped From Asserting the
Bar of the Statute of Limitations, Appellee Having
at All Times Been in Possession of All the Material
Facts and Having Initially Made an Error of Law
Which Error Misled the Appellant's Predecessors
Into Further Errors of Law, if They Made Any
Errors of Law, But Estoppel Does Not Arise From
Errors or Mutual Errors of Law.

In the conclusions of law approved by the District
Court [Tr. p. 60] the following is included:

"That the defendant is estopped from setting up the
bar of the statute of limitations to the causes of ac-
tion set forth in complaints No. 1460-Y and 1461-Y."

Apparently the acts relied upon by the appellee to estab-
lish the estoppel are as follows:

1. A series of corporations each having in its name
the word "Signal" have been in existence and have dis-
solved, distributing their assets to their successors, the
assets finally reaching the appellant. But appellee never
had any difficulty in determining the separate tax liabili-
ties of the several corporate entities.

2. On May 13, 1929, the corporation income tax re-
turn for 1928 was filed with the Collector of Internal
Revenue at Los Angeles, California, on behalf of the Sig-
nal Gasoline Corporation and was signed by S. B. Mosher,
as president, and O. W. March, as treasurer, of the said
corporation. But the return stated that Signal Gasoline
Corporation had been dissolved in December of 1928.

3. Petitions in the name of Signal Gasoline Corpora-
tion were filed with the Board of Tax Appeals on Febru-
ary 24, 1930, after Signal Gasoline Corporation had been

—34—

dissolved. But these petitions stated that Signal Gasoline
Corporation had been dissolved and that the statutory
trustees were acting.

4. A protest against a proposed deficiency for 1927
income tax of Signal Gasoline Corporation was signed
about November 20, 1929. This protest was signed "Sig-
nal Gasoline Corporation, by S. B. Mosher". But at the
left of said signature five other trustees of the dissolved
corporation signed their names. The protest was verified
by Melvin D. Wilson, one of the attorneys in fact and
in law, which stated that he had verified it for the reason
that when the statutory trustees signed the protest, they
neglected to acknowledge it before a notary public.

5. On July 27, 1931, a letter signed "Signal Gasoline
Corporation, by J. H. Rounsavell, Comptroller", was
mailed to the Collector at Los Angeles, California, stating
that there was pending before the United States Board of
Tax Appeals the question of whether Signal Gasoline Cor-
poration was liable for the 1923 income tax liability of
Signal Gasoline Company. But this letter, and the letters
mentioned in the following three paragraphs, were not
written until more than two years after the Commissioner
had been informed of the dissolution of Signal Gasoline
Corporation. Furthermore, J. H. Rounsavell was not the
statutory trustee of the dissolved corporation; nor even
one of them. Consequently, he had no standing or au-
thority to represent the dissolved corporation, or the
trustees.

6. On January 20, 1932, a letter to the Commissioner
of Internal Revenue was written and signed "Signal Gaso-
line Corporation, by J. H. Rounsavell, Comptroller", ad-
vising the Commissioner to change his records so that all

—35—

correspondence relative to the income tax matters of the
Signal Gasoline Corporation for 1924 and 1928 inclusive
would be sent to 1200 Signal Oil Building, 811 West
Seventh Street, Los Angeles, California. [Tr. p. 81.]

7. On January 20, 1932, a letter to the Commissioner
signed "Signal Gasoline Company, by J. H. Rounsavell,
Comptroller", was mailed advising the Commissioner to
change his records so that all correspondence pertaining
to the income tax liability of Signal Gasoline Company for
1922 to 1924, inclusive, would be sent to 1200 Signal Oil
Building, 811 West Seventh Street, Los Angeles, Cali-
fornia.

8. On January 20, 1932, a letter to the Commissioner
signed "Signal Gasoline Company, Inc., by J. H. Rounsa-
vell, Comptroller", was mailed advising the Commissioner
to change his records so that all correspondence pertain-
ing to the income tax liability of Signal Gasoline Com-
pany, Inc. for 1925, 1926, 1927, and 1928, inclusive,
would be sent to 1200 Signal Oil Building, 811 West
Seventh Street, Los Angeles, California.

9. An offer to compromise the taxes here involved,
acknowledged October 21, 1932, was filed shortly there-
after. It was signed "Signal Gasoline Corporation, by S.

B. Mosher, H. M. Mosher, O. W. March, R. H. Green.

C. Lav. Lazalere". In the body of the compromise and
in the acknowledgment it was stated that the corporation
had been dissolved and that the persons who signed the
protest were the statutory trustees of the dissolved cor-
poration.

10. A similar offer, acknowledged January 23, 1933,
and filed shortly thereafter, stated that Signal Gasoline
Corporation was dissolved December 12, 1928. It was

—36—

signed " Signal Gasoline Corporation, by Melvin D. Wil-
son, Attorney in Fact". The acknowledgment as well as
the offer itself stated that Signal Gasoline Corporation
was a dissolved corporation.

11. That at all times herein mentioned and considered,
substantially the same persons were officers and directors
or statutory trustees of the Signal Gasoline Corporation,
as were the officers and directors of the Signal Oil and
Gas Company and officers and directors or trustees of
Signal Gasoline Company. [Tr. p. 57, par. 22.]

12. That in addition to the acts heretofore described,
the statutory trustees of the Signal Gasoline Corporation
after its dissolution, who were those persons who were the
officers and directors of the defendant, persisted in trans-
acting business affairs of the dissolved corporation in the
name of the Signal Gasoline Corporation, and in particu-
lar the negotiations with the United States of America
regarding the tax liabilities of the Signal Gasoline Cor-
poration. [Tr. p. 58, par. 25.]

13. The attorneys who represented the former cor-
porations before the Board and before the Bureau of In-
ternal Revenue are now representing the appellant in the
case at bar.

The appellee argued for estoppel in the court below and
induced the court to include the doctrine of estoppel in the
court's conclusions of law.

It is difficult to understand the District Court's minute
order in Case No. 1460-Y [Tr. pp. 45-46] unless it is
assumed that the court relied on the doctrine of estoppel.
The court said that the assessment against Signal Gaso-
line Corporation was valid. It then said that the case

—37—

was not the case of a suit against the transferee of a
transferee and hence the taxpayer could not invoke the
doctrine of United States v. Continental National Bank
and Trust Company.

It was perfectly clear before the District Court as it is
here that Signal Gasoline Corporation was the transferee
of the assets of the Signal Gasoline Company and that
appellant is the tranferee of the assets of the Signal Gaso-
line Corporation. Since the tax involved in Case No.
1460-Y relates to the 1923 and 1924 taxes of Signal Gaso-
line Company, it is too clear for argument that the case
involved here is a suit against the transferee of a trans-
feree.

If we assume that the District Court understood the
facts, then we must assume that the District Court in
effect held that this entire chain of corporations consti-
tuted one corporation by the doctrine of estoppel, and
that the assessment against the Signal Gasoline Corpora-
tion for the tax of the Signal Gasoline Company was in
effect an assessment against the appellant.

In Case No. 1461-Y, the District Court apparently did
not rely on the doctrine of estoppel, but simply relied on
the case of McPherson v. Commissioner, 54 Fed. (2d)
751, to the effect that the assessment against Signal Gaso-
line Corporation was valid as against that corporation and
was not an assessment against the statutory trustees.

In other words, in Case No. 1460-Y the court seems to
have relied on the doctrine of estoppel, whereas in the
Case No. 1461-Y it did not rely on that doctrine but ap-
parently relied on the case of McPherson v. Commissioner,
supra.

—38—
(a) The Estoppel Point.

The elements of estoppel are too well known to this
court to require extensive citation of authority. In Van
Antwerp v. U. S.> 92 Fed. (2d) 871, statements relative
to estoppel were made at page 875 as follows :

"The burden of proving every essential element of
an estoppel is upon the parties seeking to set up an
estoppel. Hanneman v. Richter, 177 Fed. (2d) 563,
566; Merrill v. Tobin, 30 Fed. 738, 743; Mackey
Wall Plaster Company v. U. S. Gypsum Company,
244 Fed. 275, 277; Hull v. Commissioner, 87 Fed.
(2d) 260, 262; Commissioner v. Union Pacific Rail-
road Company, 86 Fed. (2d) 637, 640.

"These essential elements of estoppel, each of which
the Government must prove in this case, are set up in
an authority cited in the Government's brief;

"To constitute estoppel (1) there must be false
representation or wrongful misleading silence. (2)
The error must originate in a statement of fact and
not in an opinion or a statement of law. (3) The
person claiming the benefits of estoppel must be
ignorant of the true facts, and (4) be adversely af-
fected by the acts or statements of the person against
whom an estoppel is claimed.

"U. S. v. Scott & Son, C. C. A. 1, 69 Fed. (2d)
728, 732."

See, also, to the same effect, Helvering v. Brooklyn City
Railroad Company, 72 Fed. (2d) 274; Tidewater Oil
Company, 29 B. T. A. 1208; Mertens Law of Federal
Income Taxation, 1939, Cum. Suppl. 2511-12-13.

The evidence shows very clearly that the Commissioner
of Internal Revenue treated all the corporations involved

—39—

as separate corporations, computed their income and their
tax liabilities separately, issued separate deficiency letters,
and throughout clearly recognized the separate corporate
entities.

The evidence shows that the Commissioner was notified
of the dissolution of Signal Gasoline Corporation as
follows :

On May 13, 1929 [R. 82, par. aa] ;
November 20, 1929 [R. 79-80-95-6-7; Plaintiff's
Ex. 7] ;

February 24, 1930 [R. 75].

The Commissioner indicated that he knew of the disso-
lution in 1928, of Signal Gasoline Corporation as early as
August 16, 1930, and March 30, 1931, as his communica-
tions so stated. [R. 82-3.]

Thus the Commissioner knew within six months after
the dissolution of Signal Gasoline Corporation that it had
been dissolved. The Commissioner knew this for ap-
proximately twenty months before the Board of Tax Ap-
peals purported to render its decision against Signal Gaso-
line Corporation.

Consequently there was no misrepresentation or conceal-
ment of material facts by Signal Gasoline Corporation to
the Commissioner of Internal Revenue. The facts were
as well known to the Commissioner as they were to the
trustees of the former corporation. There was no inten-
tion on the part of the trustees of the dissolved Signal
Gasoline Corporation that the Commissioner, the Board
of Tax Appeals, or anyone else should treat Signal Gaso-
line Corporation as though it were still in existence. The

trustees notified everyone with whom they came in contact
that Signal Gasoline Corporation had been dissolved.

The Commissioner did not rely upon the supposed con-
tinued existence of Signal Gasoline Corporation. The
Commissioner knew long before he proceeded against Sig-
nal Gasoline Corporation for the 1923-1924 taxes that the
latter had been dissolved. He knew in May of 1929 that
the Signal Gasoline Corporation had been dissolved
whereas he did not proceed against it for the 1924 taxes
until December of 1929.

When, in the petition filed February 24, 1930, the Com-
missioner was again notified that Signal Gasoline Cor-
poration had been dissolved, he had until December 31st,
1930, to assess the trustees or the appellant herein. (Sec.
280 (b) (1) Revenue Act of 1926.) That he did not do
so was due to no fault of the trustees or the appellant.

As a matter of fact, the Commissioner simply made a
mistake of law as to the effect of Section 400 of the Civil
Code of California. The Commissioner was presumed to
know the law of California and therefore was presumed
to know that Signal Gasoline Corporation had been com-
pletely destroyed upon its dissolution in December of 1928.
In fact, the Commissioner had knowledge that under
California laws a corporation was completely destroyed
by its dissolution. See Sanborn Bros. Successors, 14 B.
T. A. 1059, decided Jan. 8, 1929. In that case the head-
note of the Board's decision reads as follows:

"A corporation of California had forfeited its char-
ter in 1917 under the California statute of 1915, and
under California law its affairs thereafter were in
the hands of the former directors as trustees. Re-
spondent determined deficiencies against the corpora-

—41—

tion for 1919 and the former stockholders, by one of
their number, filed a petition with the Board. Held,
since the stockholders are not the persons against
whom the deficiency has been determined and has no
authority to represent such persons, the Board has
no jurisdiction."

Inasmuch as the Commissioner at the time he issued his
deficiency notice on December 28, 1929, had been informed
that Signal Gasoline Corporation had been dissolved, the
Commissioner's action in addressing the dissolved corpo-
ration as Signal Gasoline Corporation really led the trus-
tees of Signal Gasoline Corporation to file an appeal with
the United States Board of Tax Appeals in the name of
Signal Gasoline Corporation. The petition stated, how-
ever, that the corporation had been dissolved and the dis-
solved corporation was acting through its statutory
trustees.

If the petition was not properly entitled in order to
constitute a pleading by the trustees as such, the error
was one of law and was induced by the manner in which
the Commissioner addressed the deficiency letter.

It is well established that estoppel cannot exist as to a
mistake or mutual mistake of law, or as to an expression
of opinion, as distinguished from a representation of
facts. (Helvering v. Salvage, 297 U. S. 106; Van Ant-
werp v. U . S., 92 Fed. (2d) 871 ; Hazvke v. Commissioner,
109 Fed. (2d) 946; Tidewater Oil Co., 29 B. T. A. 1208;
S. F. Scott & Son v. Commissioner, 69 Fed. (2d) 728;
Union Pacific R. R. Co., 32 B. T. A. 383, affirmed in
Commissioner v. Union Pacific R. R. Co., 86 Fed. (2d)
637; U. S. v. Dickinson, 95 Fed. (2d) 65; Grand Central
Public Market, Inc. v. U. S., 22 Fed. Supp. 119, appeal
dismissed 98 Fed. (2d) 1023, C. C A. 9.)

-^2—

The Commissioner had a large number of skilled em-
ployees, attorneys and others engaged in collecting taxes
in California, and certainly had as much opportunity to
know the law of California as did the trustees of the dis-
solved corporation. The Commissioner deals with hun-
dreds of cases of corporations and dissolved corporations,
whereas the trustees had only the one case. When the
Commissioner wrote to the dissolved corporation in the
name of the former corporation, he led the trustees and
their counsel into thinking that that was the proper man-
ner in which the trustees of a dissolved corporation would
handle its tax matters.

It is very doubtful if any mistake of law has been made
by appellant's predecessors or their trustees.

As a matter of law, the deficiency letters issued in the
name of Signal Gasoline Corporation, after it had been
dissolved, was probably a letter issued to the trustees, and
the petition filed by the trustees in the name of the dis-
solved corporation was a petition by and for the trustees.
(See the discussion on this point, pp. 26 to 31, incl.)

But an assessment against the trustees (first trans-
ferees) would not give the Government six years to sue
the appellant, who was a subsequent transferee (second
transferee). (U. S. v. Continental National Bank &
Trust Co., supra.) Probably the only mistake which has
been made, was the appellee's erroneous opinion that a
valid assessment against the first transferee would give it
six years to sue the second transferee.

Furthermore, the acts upon which appellee would base
its estoppel are not the acts of the appellant, but of corpo-
rations whose existence has long since been terminated by
law, or the trustees thereof.

Appellant should not be estopped from pleading the
statute of limitations.

(b) The McPherson Case.

In its minute order in Case No. 1461-Y, the court below
relied on the case of McPherson v. Commissioner, 54 Fed.
(2d) 751, as its authority for the proposition that the
purported assessments against Signal Gasoline Corpora-
tion were valid, even though that corporation had long
before been dissolved.

The McPherson case was decided by this court, and
related to a dissolved California corporation. The lower
court apparently felt bound by that decision, even though,
in G. M. Standifer Construction Corporation v. Commis-
sioner, 78 Fed. (2d) 285, this court more thoroughly
considered the law as to the effect of the dissolution of a
corporation, when no provision is made for continuing the
corporate existence. In the latter case, this court held
that a dissolution under laws similar to California's ap-
plicable law completely destroys the corporation and no
subsequent proceedings affecting it are valid.

It is very apparent that, in the McPherson case, there
was not called to the attention of the court the California
cases holding that corporations dissolved before July 14,
1929, were absolutely destroyed, whereas corporations
dissolved thereafter continue to exist for the purpose of
winding up their affairs.

Furthermore, in the McPherson case, the statutory
trustees signed a waiver of the statute of limitations,
designating themselves as surviving trustees of Leighton's,
Inc., a dissolved corporation taxpayer. It will be noted
that the waiver was by the trustees and not by the cor-

-44—

poration and that the trustees did not appeal a later de-
ficiency notice and consequently an assessment was made
in the name of the corporation, but apparently against the
statutory trustees, as a matter of law. Within the statu-
ory time thereafter, the Commissioner proceeded against
the trustees individually, as transferees of the assets of
the former corporation.

The court, in the McPherson case, said that whether
the former corporation was designated by its name or
under the term "a dissolved corporation", or as "a dis-
solved corporation in the hands of trustees", served to
suggest a matter of form only and not one attended by
substantial differences. That was possibly true in the
McPherson case since the statutory trustees had given a
waiver as trustees, and it is reasonable to suppose that
the further proceedings by the Commissioner were against
the statutory trustees.

In Case No. 1461-Y, however, it makes a difference
whether the alleged assessment was against Signal Gaso-
line Corporation, or against the statutory trustees. If
against the corporation, and if, contrary to appellant's
contentions, it were held valid, it would possibly give ap-
pellee six years within which to sue first or even second
transferees of the assets.

On the other hand, if the assessment was against the
statutory trustees, it would be valid. But since the statu-
tory trustees were the first transferees of the assets of
Signal Gasoline Corporation, a valid assessment against

—45—

them would not give the appellee six years in which to
sue the second transferee, namely, appellant. (U. S. v.
Continental National Bank & Trust Co., supra.)

It should be noted that the decision of this court in
McPherson v. Commissioner, supra, is not based upon
the grounds of estoppel; consequently, it must be con-
sidered that the decision was overruled by this court in
its later decision in the case of G. M. Standifer Construc-
tion Company v. Commissioner, 78 Fed. (2d) 285; or if
not so overruled, then it is submitted that the McPherson
case is not, since the decision of the Supreme Court in
U. S. v. Continental National Bank & Trust Co., supra,
good law, since to ignore the difference between making a
void assessment against a dissolved corporation or a
valid assessment against its statutory trustees, does not
give the principle announced in the U. S. v. Continental
case a chance to operate.

In any event, in the McPherson case, the suit before
this court (and probably the assessment itself) was
against the first transferees, namely, the statutory trustees,
whereas in the cases at bar, the suits are against the
second transferees. Since the McPherson case was de-
cided, the Supreme Court has held that an assessment
against the first transferees does not give the Government
six years in which to sue second transferees.

Consequently, the McPherson case does not establish the
solidity of the assessment against Signal Gasoline Cor-
poration.

Summary.

It is respectfully submitted that the suits herein are
barred by the statute of limitations because brought more
than four years after the taxpayer corporations filed their
1923 and 1924 income tax returns; because the Commis-
sioner of Internal Revenue never assessed the alleged tax
against the appellant herein; because the alleged assess-
ments against Signal Gasoline Corporation were invalid and
hence there is no evidence that any tax is owing from
anyone, and do not create a basis for a six year period
for suit; and even if there had been a valid assessment
against that corporation or its trustees, this would not have
given the appellee six years within which to sue appellant,
second transferee of the assets of the taxpayer corpora-
tion; that the Supreme Court decision in U. S. v. Conti-
nental National Bank & Trust Co., supra, is squarely in
point; that neither appellant nor any of the predecessor
companies nor trustees of dissolved corporations have
concealed from, or misrepresented any facts to, the Com-
missioner of Internal Revenue; and if any mistake was
made, it was originated by the Commissioner, who made
a mistake of law, and if any of the taxpayers made a
mistake, it was a mistake of law induced by the mistake
of the Commissioner, but no estoppel is based upon inno-
cent or mutual mistakes of law.

The judgments against appellant should be reversed.

Respectfully submitted,

Melvin D. Wilson,
Attorney for Appellant,

APPENDIX.

Statutes Involved.

Section 277(a) (1) of the Revenue Act of 1924 provides
as follows:

"The amount of income, excess profits, and war-profits
taxes imposed by the Revenue Act of 1921, and by such
Act as amended, for the taxable year 1921, and succeeding
taxable years, and the amount of income taxes imposed by
this Act, shall be assessed within four years after the re-
turn was filed, and no proceeding in court for the collection
of such taxes shall be begun after the expiration of such
period."

Section 278(d) of the Revenue Act of 1926 reads as
follows :

"Where the assessment of any income, excess-profits, or
war-profits tax imposed by this Title or by prior Acts of
Congress has been made (whether before -or after the
enactment of this Act) within the statutory period of limi-
tation properly applicable thereto, such tax may be col-
lected by distraint, or by a proceeding in court (begun
before or after the enactment of this Act), but only if
begun (1) within six years after the assessment of the
tax, or (2) prior to the expiration of any period for col-
lection agreed upon in writing by the Commissioner and
the taxpayer."

Section 400 of the Civil Code of California, in effect
until August 14, 1929, provided as follows:

"Sec. 400. Directors, Trustees of Creditors, on
Dissolution. Unless other persons are appointed by the
court, the directors or managers of the affairs of a cor-
poration at the tirrie of its dissolution are trustees of the

creditors and stockholders or members of the corporation
dissolved, and have full powers to settle the affairs of the
corporation, collect and pay outstanding debts, sell the
assets thereof in such manner as the court shall direct, and
distribute the proceeds of such sales and all other assets to
the stockholders. Such trustees shall have authority to sue
for and recover the debts and property of the corporation,
and shall be jointly and severally personally liable to its
creditors and stockholders or members, to the extent of its
property and effects that shall come into their hands. Death,
resignation or failure or inability to act shall constitute a
vacancy in the position of trustee, which vacancy shall be
filled by appointment by the Superior Court upon petition
of any person or creditor interested in the property of such
corporation. Such trustees may be sued in any court in
this state by any person having a claim against such cor-
poration or its property. Trustees of corporations here-
tofore dissolved or whose charters have heretofore been
forfeited by 'law shall have and discharge in the same
manner and under the same obligations, all the powers and
duties herein prescribed. Vacancies in the office of trustees
of such corporation shall be filled as hereinbefore provided ;
provided, however, that any deed executed in the name of
such corporation by the president or vice-president and
secretary or assistant secretary after a dissolution thereof
or after a forfeiture of the charter of such corporation or
after the suspension of the corporate rights, privileges and
powers of such corporation, which deed shall have been
duly recorded in the proper book of records of the county
in which the land or any portion thereof so conveyed is
situated, for a period of five years, shall have the same
force and effect as if executed and delivered prior to said
dissolution, forfeiture or suspension,"

No. 9813.
IN THE //

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Signal Oil and Gas Company, a corporation,

Appellant,
vs.
United States,

Appellee.

Upon Appeal from the District Court of the United States for the
Southern District of California, Southern Division.

BRIEF FOR THE UNITED STATES.

Samuel O. Clark, Jr.,

Assistant Attorney General.

Sewall Key,
Edward First,

Special Assistants to the Attorney General.

United States Post Office and Court House
Building, Los Angeles,

William Fleet Palmer, p \ [ p» LJ

United States Attorney.

Armond Monroe Jewell,

Assistant United States Attorney.

PAUL P. O'BRIEN,

■ ■

Parker & Baird Company, Law Printers, Los Angeles.

TOPICAL INDEX.

PAGE

Opinion Below 1

Jurisdiction 1

Questions Presented 2

Statutes Involved 2

Statement 2

Summary of Argument 7

Argument 8

I. The Assessments Against the Signal Gasoline Corporation

Were Valid and May Not Be Questioned by the Appellant 8

II. The Statute of Limitations Does Not Bar These Actions.. 18

Conclusion 26

11.

TABLE OF AUTHORITIES CITED.

Cases. page

American Equitable Assur. Co. of New York v. Helvering,
68 Fed. (2d) 46 18

Buzard v. Commissioner, 28 B. T. A. 247 17

Buzard v. Helvering, 77 Fed. (2d) 391 14, 17

California Iron Yards Co. v. Commissioner, 47 Fed. (2d) 514.... 15

City Nat. Bank v. Commissioner, 55 Fed. (2d) 1073 22

City of New York v. Feiring, decided May 26, 1941, by the
United States Supreme Court 23

Continental Baking Co. v. Helvering, 75 Fed. (2d) 243 18

Hanson v. Choynski, 180 Cal. 275 15

Helvering v. Wheeling Mold & Foundry Co., 71 Fed. (2d) 749.. 18

Higgins v. Smith, 308 U. S. 473 26

Hirsch, S., Distilling Co. v. Commissioner, 14 B. T. A. 1073 16

Iberville Wholesale Grocery Co., Ltd., v. Commissioner, 15 B.
T. A. 645 16

McPherson v. Commissioner, 54 Fed. (2d) 751 12

Pann v. United States, 44 Fed. (2d) 321 18

Phillips v. Commissioner, 283 U. S. 589 18

Ransomme-Crummey Co. v. Superior Court, 188 Cal. 393... 15

Rossi v. Caire, 186 Cal. 544 15

Sanborn Brothers v. Commissioner, 14 B. T. A. 1059 16

Signal Gasoline Corp. v. Commissioner, 66 Fed. (2d) 886 16

Signal Gasoline Corp. v. Commissioner, 77 Fed. (2d) 728 16

Standifer, G. M., Const. Corp. v. Commissioner, 78 Fed. (2d)
285 15

Union Plate & Wire Co. v. Commissioner, 17 B. T. A. 1229 16

ill.

PAGE

United States v. Adams, 92 Fed. (2d) 395 21, 22

United States v. Continental Bank, 305 U. S. 398 23

United States v. Russell, 22 Fed. (2d) 249 24

United States v. Updike, 281 U. S. 489 18, 20, 21, 23

Warner Collieries Co. v. United States, 63 Fed. (2d) 34 17

Wiethoff v. Refining Properties, Ltd., 8 Cal. App. (2d) 64 25

Statutes. page

California Civil Code, as amended in 1921 (Kerr's Biennial
Supplement Annotated (1921), p. 465), Sec. 400 11

Internal Revenue Code, Sec. 311 19

Revenue Act of 1926, c. 27, 44 Stat. 9, Sec. 278 28

Revenue Act of 1926, c. 27, 44 Stat. 9, Sec. 280 17

Revenue Act of 1928, c. 852, 45 Stat. 791, Sec. 311 19

Revenue Act of 1928, c. 852, 45 Stat. 791, Sec. 814 19

Revenue Act of 1932, c. 209, 47 Stat. 169, Sec. 311 19

Revenue Act of 1934, c. 277, 48 Stat. 680, Sec. 311 (U. S. C,
Title 26, Sec. 311) 19

Revenue Act of 1936, c. 690, 49 Stat. 1648, Sec. 311 (U. S. C,
Title 26, Sec. 311) 19

Revenue Act of 1938, c. 289, 52 Stat. 447, Sec. 311 19

IV.

INDEX TO APPENDIX.

Statutes. page

California Civil Code as amended in 1921 (Kerr's Biennial

Supplement, Annotated (1921), p. 465) 4

Revenue Act of 1926, c. 27, 44 Stat. 9, Sec. 277 1

Revenue Act of 1926, c. 27, 44 Stat. 9, Sec. 27S 1

Revenue Act of 1926, c. 27, 44 Stat. 9, Sec. 280 2

Revenue Act of 1926, c. 27, 44 Stat. 9, Sec. 281 4

No. 9813.
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Signal Oil and Gas Company, a corporation,

Appellant,

vs.
United States,

Appellee.

BRIEF FOR THE UNITED STATES.

Opinion Below.

The opinions of the District Court [R. 45-47] are not
reported.

Jurisdiction.

This is a consolidated appeal from judgments entered
for the United States in the amounts of $20,217.82 and
$4,569.52 with interest as provided by law on December
26, 1940. [R. 61-63.] Notices of appeal were filed on
March 20, 1941. [R. 63-65.] The jurisdiction of this
Court is invoked under Section 128(a) of the Judicial
Code as amended by the Act of February 13, 1925.

— 2—

Questions Presented.

1. Whether certain assessments against the Signal
Gasoline Corporation are invalid and subject to attack in
these suits against the transferee of the Signal Gasoline
Corporation to collect such assessments.

2. Whether these suits are barred by the statute of
limitations.

Statutes Involved.

The applicable statutes will be found in the Appendix,
infra, pages 1 et seq.

Statement.

A. Preliminary Statement.

The basic facts indicating the nature of these suits
which have been consolidated on this appeal may be briefly
stated. Corporation A (Signal Gasoline Company) trans-
ferred its assets and liabilities to Corporation B (Signal
Gasoline Corporation) in return for B's stock. Corpora-
tion A was dissolved and the stock distributed to its share-
holders. Corporation C (the appellant Signal Oil and
Gas Company) acquired all the stock of B which it liqui-
dated, taking over all of B's assets. Two suits were
brought by the United States against C to recover:

(1) Income taxes assessed against B for 1923 and
1924 as the transferee of A. (Case No. 1460-Y.)

(2) Income taxes assessed against B for 1924 as
the original taxpayer. (Case No. 1461-Y, formerly
1461-RJ.)

— 3—

B. Details of Corporate Changes and Activities.
On May 1, 1924, pursuant to an agreement between the
Signal Gasoline Company, a California corporation, and
the Signal Gasoline Corporation, a California corporation,
all the assets of the Signal Gasoline Company were turned
over to the Signal Gasoline Corporation for 400,000
shares of stock of the Signal Gasoline Corporation, and
on September 11, 1924, the Signal Gasoline Company was
dissolved; the 400,000 shares received by the Signal Gas-
oline Company in exchange for its assets and liabilities
were distributed to its stockholders. [R. 49-50.]

The Signal Gasoline Company, Incorporated, a corpora-
tion now dissolved, was prior to its dissolution a holding
company for the stock of the Signal Gasoline Corporation.
On July 31, 1928, it owned 419,500 shares of the stock
of the Signal Gasoline Corporation, which was 93.22%
of the outstanding 450,005 shares of the Signal Gasoline
Corporation; the balance of 30,505 shares of the stock
outstanding of the Signal Gasoline Corporation (6.78%Y
was owned by individual stockholders of the Signal Gas-
oline Company, Incorporated. [R. 50.]

On August 1, 1928, the appellant, Signal Oil and Gas
Company, acquired all the assets of the Signal Gasoline
Company, Incorporated, which, as noted above, included
93.22% of the stock of the Signal Gasoline Corporation.
In November, 1928, the appellant acquired the remaining

iThroughout the record this is referred to as 4.23%; obviously, a
mathematical error.

— 4—

6.78% of the outstanding stock of the Signal Gasoline
Corporation from the individual stockholders of the Signal
Gasoline Company. [R. 50-51.]

The Signal Gasoline Corporation was dissolved by court
decree on December 12, 1928. This decree of dissolution
reads in part as follows [R. 86, 87-88] :

The voluntary application for dissolution of the
Signal Gasoline Corporation, a domestic corporation,
coming on regularly this day for hearing and deter-
mination, the Court finds: * * * 5 * * *
that the Board of Directors of said corporation under
its Articles of Incorporation consisted of six (6)
members and does now consist of six (6) members,
namely :

S. B. Mosher
O. W. March
Ross McCollum
H. M. Mosher
C. LaV. Larzelere
R. H. Green.

Wherefore, it is Ordered, Adjudged and Decreed,
that said Corporation, the Signal Gasoline Corpora-
tion be, and the same is, and is hereby declared to be
dissolved. It is further Ordered and Decreed that
said S. B. Mosher, H. M. Mosher, O. W. March,
Ross McCollum, C. LaV. Larzelere and R. LL Green
are entitled to be, and are by the Court herein ap-
pointed, trustees for the stockholders of said corpora-
tion, with power and direction to settle all the affairs
of said corporation, and to distribute and convey all
the property of said corporation to each of said stock-
holders, in proportion to the number of shares owned
and held by said stockholders when said distribution
and conveyance shall be made. * * *

— 5—

On December 14, 1928, all of the assets of the Signal
Gasoline Corporation were conveyed to the appellant sub-
ject to all liabilities, including taxes, of the Signal Gas-
oline Corporation. [R. 51.] This conveyance reads in
part as follows [R. 83, 84] :

That whereas, on the 12th day of December, 1928,
the Superior Court of the State of California in and
for the County of Los Angeles made and filed its
decree dissolving the Signal Gasoline Corporation,
* * * Now therefore, in consideration of the
premises S. B. Mosher, H. M. Mosher, O. W. March,
Ross McCollum, C. LaV. Larzelere and E. H. Green,
as Trustees for the stockholders of said Signal Gas-
oline Corporation, a dissolved corporation, and also
in their individual capacities, do hereby assign, trans-
fer, grant, convey, deliver and distribute to said Sig-
nal Oil and Gas Company, a Delaware corporation,
all of the assets, business and property * * * pos-
sessed by said dissolved corporation at the time of
its dissolution, * * * and subject to all outstand-
ing obligations and liabilities thereon, and subject to
the payment of income taxes that may be due to the
United States Government covering operations of
said dissolved corporation during the current year
and all sums that may be found due covering income
taxes for previous years. * * *

By reason of this dissolution and distribution the Signal
Gasoline Corporation was and is left without any money,
assets or property to pay the taxes hereinafter shown to
be due the United States. [R. 56.] The assets so ac-
quired by the appellant were far in excess of such taxes.
[R. 57.]

At all times involved substantially the same persons
were officers and directors or statutory trustees of the
Signal Gasoline Corporation as were the officers and
directors of the appellant, and officers and directors of the
Signal Gasoline Company, Incorporated. [R. 57.]

In addition to the acts subsequently described, the statu-
tory trustees of the Signal Gasoline Corporation after its
dissolution, who were those persons who were the officers
and directors of the appellant, persisted in transacting
business affairs of the dissolved corporation in the name
of the Signal Gasoline Corporation and in particular in
the negotiations with the United States of America re-
garding the tax liabilities of the Signal Gasoline Cor-
poration. [R. 58.]

C. Facts Concerning Assessments Against Siqnal
Gasoline Corporation.

The details concerning the assessments against the Sig-
nal Gasoline Corporation are given under Argument I.
The following general facts may here be noted.

In October, 1928, the Commissioner of Internal Revenue
proposed a tax deficiency against the Signal Gasoline Cor-
poration for the year 1923 as transferee of the Signal
Gasoline Company. [R. 5-6.] In December, 1929, a
similar tax deficiency was proposed for the year 1924.
[R. 6.] The Signal Gasoline Corporation through its
trustees prosecuted petitions for redetermination of these
taxes by the Board of Tax Appeals. The Board sus-
tained the Commissioner's determinations, 25 B. T. A.
532, and assessments were accordingly made on Septem-

— 7—

ber 10, 1932. [R. 52-53.] Suit was instituted on Sep-
tember 9, 1938, against these appellants to collect the
assessments. [R. 2-9.]

In September, 1929, the Commissioner of Internal
Revenue proposed a tax deficiency against the Signal
Gasoline Corporation as an original taxpayer for the year
1924. Through its trustees it prosecuted a petition for
redetermination of the taxes by the Board of Tax Appeals.
The Board sustained the Commissioner's determination,
25 B. T. A. 861, and an assessment was accordingly made
on October 1, 1932. [R. 54-56.] Suit was instituted on
September 9, 1938, against these appellants to collect the
assessment. [R. 9-15.]

The District Court entered judgment for the United
States in both cases [R. 61-63] and these consolidated
appeals were thereafter taken. [R. 63-65.]

Summary of Argument.

The assessments against the Signal Oil Corporation are
valid. They were entered pursuant to decisions of the
Board of Tax Appeals in proceedings instituted and
prosecuted by the corporation through its duly authorized
trustees.

The statute of limitations does not bar these suits. Tax
assessments may be collected by proceedings in court com-
menced within six years after the assessments were made.
The assessments against the Signal Gasoline Corporation
were entered on September 10, 1932, and October 1, 1932.
These suits were instituted on September 9, 1938,

— 8—

ARGUMENT.

I.

The Assessments Against the Signal Gasoline Corpora-
tion Were Valid and May Not Be Questioned by
the Appellant.

These suits are based upon three assessments made in
1932 against the Signal Gasoline Corporation, the cor-
poration whose assets were received by the appellant. The
validity of the assessments is questioned by the appellant.
The facts concerning them are as follows:

A. Assessments Against Signal Gasoline Corpora-
tion as Transferee of Signal Gasoli,ne Com-
pany.

On October 2, 1928, the Commissioner of Internal
Revenue mailed a letter to the Signal Gasoline Corpora-
tion proposing a tax deficiency against that corporation
as transferee of the Signal Gasoline Company in the
amount of $468.33 for the year 1923. [R. 52, 74.] An
appeal from this proposed deficiency was taken in the
name of the Signal Gasoline Corporation and was docketed
with the Board of Tax Appeals on November 19, 1928
(Docket No. 41532). [R. 52, 75.]

On December 12, 1928, a Decree of Dissolution was
entered by the Superior Court of the State of California
dissolving the Signal Gasoline Corporation upon its own
application. This decree also ordered that [R. 87-88] :

* * * S. B. Mosher, H. M. Mosher, O. W.
March, Ross McCollum, C. LaV. Larzelere and R. H.
Green are entitled to be, and are by the Court herein
appointed, trustees for the stockholders of said cor-
poration, with power and direction to settle all the

affairs of said corporation and to distribute and con-
vey all the property of said corporation to each of
said stockholders, in proportion to the number of
shares owned and held by said stockholders when
said distribution and conveyance shall be made

On December 28, 1929, the Commissioner of Internal
Revenue mailed a letter to the Signal Gasoline Corpora-
tion proposing a tax deficiency against that corporation as
transferee of the Signal Gasoline Company in the amount
of $2,672.53 for the period ended September 11, 1924.
[R. 52, 74.] An appeal from this proposed deficiency
was taken in the name of the Signal Gasoline Corporation
and was docketed with the Board of Tax Appeals on
February 24, 1930 (Docket No. 47620). This petition in
its first paragraph stated that "The petitioner is a dissolved
corporation acting through its statutory trustees." The
verification on the petition was signed by six persons and
stated that they were "the statutory trustees of Signal
Gasoline Corporation, a dissolved corporation. " [R. 52,
75.]

Both petitions for redetermination above referred to
were signed by Robert N. Miller and Melvin D. Wilson
as attorneys for the petitioners. [R. 75.]

On February 16, 1932, the Board of Tax Appeals
promulgated a single opinion with respect to both petitions.
(25 B. T. A. 532.) The petitioner was described as "a
dissolved California corporation, acting through its statu-
tory trustees" and the opinion recited that "The petitioner
concedes the tax liability [of the Signal Gasoline Com-
pany], but contends that it is not liable at law or in equity
for the deficiency asserted." (25 B. T. A. 533.) The

—10—

Board concluded that transferee liability existed, and ac-
cordingly, no appeal having been taken, an assessment
was made on September 10, 1932, against the Signal
Gasoline Corporation in the amount of $468.33 plus in-
terest of $227.96 for the taxable year 1923 and $2,672.53
plus interest of $1,200.70 for the period ended September
11, 1924. [R. 52-53, 88-90.]

B. Assessment Against Signal Gasoline Corpora-
tion for Its Own 1924 Taxes.

The Signal Gasoline Corporation filed its income tax
return for the calendar year 1924 on or about May 13,
1925. [R. 53, 76.] On December 3, 1928, it signed and
filed a consent extending the time for assessing any in-
come taxes due for the year 1924 until December 31, 1929.
[R. 54, 76, 91.]

On December 28, 1929, the Commissioner of Internal
Revenue mailed a letter to the Signal Gasoline Corpora-
tion proposing a tax deficiency against that corporation in
the amount of $14,137.05 for the period May 1 to Decem-
ber 31, 1924. This letter also proposed an assessment of
other additional tax liabilities for the calendar years 1925
and 1926 which are not now in issue. [R. 54, 76-77.]
An appeal from these proposed deficiencies was taken in
the name of the Signal Gasoline Corporation and was
docketed with the Board of Tax Appeals on or about
February 24, 1930 (Docket No. 47621). This petition,
signed by Robert N. Miller and Melvin D. Wilson as
attorneys for the petitioners, in its first paragraph stated
that "The petitioner is a dissolved California corporation
acting through its statutory trustees." The petition was
verified by the six trustees. [R. 55-56, 77-78.]

—11—

On March 14, 1932, the Board of Tax Appeals promul-
gated its opinion with respect to this petition. (25 B. T. A.
861.) The petitioner was described as "a dissolved Cali-
fornia corporation acting through its statutory trustees."
(25 B. T. A. 862.) The Board concluded that the pro-
posed deficiencies were correct, and accordingly, no appeal
having been taken with respect to the year 1924, an assess-
ment was made on October 1, 1932, against the Signal
Gasoline Corporation, in the amount of $14,137.05 plus
interest of $6,080.77 for the period May 1 to December
31, 1924. [R. 56, 78, 97-99.]

The appellant urges that because the Signal Gasoline
Corporation was dissolved in December, 1928, the pro-
ceedings before the Board of Tax Appeals and the sub-
sequent assessments were null and void. The decisions
of this and other courts establish that this contention is
erroneous.

The Signal Gasoline Corporation was a California cor-
poration. Prior to the general statutory revision of the
California corporation law in 1931, Section 400 of the
California Civil Code, as amended in 1921 [Appendix,
infra], provided:

Unless other persons are appointed by the court,
the directors or managers of the affairs of a corpora-
tion at the time of its dissolution are trustees of the
creditors and stockholders or members of the cor-
poration dissolved, and have full powers to settle the
affairs of the corporation, collect and pay outstand-
ing debts, sell the assets thereof in such manner as
the court shall direct, and distribute the proceeds of
such sales and all other assets to the stockholders.
Such trustees shall have authority to sue for and
recover the debts and property of the corporation,

—12—

and shall be jointly and severally personally liable to
its creditors and stockholders or members, to the
extent of its property and effects that shall come into
their hands. * * *

When the Signal Gasoline Corporation was dissolved in
1928, a court order was entered as heretofore noted nam-
ing six trustees "with power and direction to settle all the
affairs" of the corporation. All of the proceedings before
the Board of Tax Appeals were prosecuted by these trus-
tees who were clearly acting within the authority granted
by the court. It therefore follows that such proceedings
and the ensuing assessments adjudging the liabilities of
the Signal Gasoline Corporation were valid. This con-
clusion is supported by the decision of this Court in
McPherson v. Commissioner, 54 F. (2d) 751. There, a
California corporation was dissolved in June, 1920. The
trustees thereafter filed with the Commissioner of Internal
Revenue a waiver of the time prescribed by law for mak-
ing assessment of taxes against the corporation, and sub-
sequently, within the proper time as extended, such assess-
ment was made. Thereafter, in an action before the
Board of Tax Appeals involving the transferee liability of
these trustees individually they urged (p. 752) :

* * * (1) That the commissioner was not
authorized under the law to make the deficiency as-
sessment against a corporation that had been dis-
solved. (2) That the waiver extending the time
within which the assessment might be made was
invalid.

********

—13—

This court rejected both contentions saying (pp. 752,
753):

Upon the dissolution of the corporation, the peti-
tioner, together with Barthel, as directors of the cor-
poration, became trustees, with the power and duty
to adjust any unsettled affairs of the corporation; to
collect its receivables and to pay its debts. Section
400 of the Civil Code of California, as it read during
all of the time important to these tax proceedings,
contained the following provisions:

Those provisions do not limit the period during
which the trustees shall continue to act. Hence, the
implication is plain that they shall continue to act so
long as any of the affairs of the dissolved corpora-
tion remain unsettled. United States v. Laflin (C. C.
A.), 24 F. (2d) 683; Havemeyer v. Superior Court,
84 Cal. 327, 24 P. 121, 10 L. R. A. 627, 18 Am. St.
Rep. 192. We find no reason to distinguish a case
where trustees are acting to liquidate corporate af-
fairs under the provisions of the California statute
from those cases where liquidators are provided for
to act in the corporate name. The corporation here
concerned became liable for the tax during the year
when it was functioning under its charter. That tax
the commissioner was entitled to assess in some form,
and whether he designated the corporation by name,
as though it were still fully alive, or designated its
estate under the term "a dissolved corporation/' or
designated it as ua dissolved corporation in the hands
of trustees" seems to suggest a matter of form only
and not one attended by substantial differences. It
was necessary that the total amount of the tax which
accrued against the corporation during its active ex-
istence be ascertained, in order that the tax might be

—14—

collected and the assets followed into whosoever hands
they might be found. The fixing of the tax charge
as it had accrued against the corporation was a nec-
essary prerequisite to the ascertainment of the pro-
portionate amounts due from the transferees of the
assets. The former directors, acting as trustees, as
the law provided they should act, were legally bound
to take notice of the assessment proceedings of which
they were given notice, following the return which
they made to the commissioner.

********

The validity of proceedings before the Board of Tax
Appeals by a dissolved corporation through its trustees
was also questioned in Busard v. H elver ing, 77 F. (2d)
391 (App. D. C). There, the corporation had been dis-
solved in 1922 and subsequently a petition before the Board
of Tax Appeals was filed for the corporation by an attor-
ney authorized to do so by the corporate trustees. In
sustaining the jurisdiction of the Board of Tax Appeals
the court said (pp. 394, 395) :

Placing themselves squarely on the California law,
as interpreted and pronounced by the Supreme Court
of California in the Crossman case, petitioners say
that, since the Navarro Lumber Company had been
legally dissolved in 1922, it could not thereafter be
served with process, could not appear, and could not
itself admit anything, nor authorize anyone to do so
for it. That, in these circumstances, all that was done
in its behalf by its trustees in the matter of the appeal
to the Board of Tax Appeals was a nullity, and there-

— 15—

fore had no effect, and could have no effect, in ex-
ending the periods of limitations. * * * But, in
our view, petitioners' premise is not sustainable on
either of two grounds.

In taking the appeal, petitioners set out the author-
ity on which they acted. They speak of themselves
as the trustees of the lumber company "now in process
of liquidation" and point to the statute of California
for their authority to act. By reference to that stat-
ute (Civil Code, §400 as amended by St. Cal. 1921,
c. 383, p. 574) we find that they have power to settle
the affairs of the corporation, collect and pay out-
standing debts, to sue and to be sued in relation to
the debts and property of the corporation, and that
they shall be jointly and severally liable to creditors
to the extent of any property that shall come into
their hands. It was in recognition of these duties and
responsibilities that they filed the appeal. We think it
cannot be urged that they were without authority, or
the Board without jurisdiction. * * *

The case at bar does not involve the situation as in
G. M. Standifer Const. Corp. v. Commissioner, 78 F. (2d)
285 (C. C. A. 9th), where an Oregon corporation, fully
dissolved and without either statutory or judicially desig-
nated trustees, attempted nevertheless to litigate as a live
corporation.2 In the case at bar, to the contrary, the pro-

sin California Iron Yards Co. v. Commissioner, 47 F. (2d) 514, 516, this
Court referred to a California corporation dissolved in 1921 as "one of' sus-
pended animation," citing 7 Cal. Jur. 640; Hanson v. Choynski, 180 Cal 27^
180 Pac. 816; Rossi v. Cairc, 186 Cal. 544, 199 Pac. 1042; Ransomme-Crmn-
mey Co. v. Superior Court, 188 Cal. 393, 205 Pac. 446.

—16—

ceedings before the Board on behalf of the corporation
were prosecuted by its duly authorized trustees. Had it
so desired the corporation could have appealed to this
Court for a review of the Board's decisions. As a matter
of fact, it did appeal to this Court from the previously
mentioned Board opinion in 25 B. T. A. 861 in so far as
it determined the corporation's tax liabilities for 1925 and
1926. This Court reversed the Board's decision on the
merits and remanded the case for recomputation. {Signal
Gasoline Corporation v. Commissioner, 66 F. (2d) 886.)
The Board made such recomputation, 30 B. T. A. 568.
Again the corporation effected an appeal to this Court at
which time the Board's action was affirmed.

Signal Gasoline Corp. v. Commissioner, 77 F. (2d)
728.3

The appellant's brief (p. 20) cites four decisions of the
Board of Tax Appeals dealing with the effect of corporate
dissolution upon Board proceedings. They are not in
point since none of them was an action prosecuted by the
properly constituted trustees.4 Actually, the views of the
Board of Tax Appeals with respect to dissolved California

3In both appeals, the counsel for the Signal Gasoline Corporation was the
present attorney for the appellant.

^Sanborn Brothers v. Commissioner, 14 B. T. A. 1059, was a purely offi-
cious suit by a stockholder of a dissolved California corporation. 5\ Hirsch
Distilling Co. v. Commissioner, 14 B. T. A. 1073, concerned a Missouri cor-
poration totally dissolved without any person being authorized to maintain
an action. The dismissal in Iberville Wholesale Grocery Co. Ltd. v. Com-
missioner, 15 B. T. A. 645, was entered because of lack of evidence as to the
trustee's authority, but the case was reinstated when such authority was
shown, 17 B. T. A. 235. Union Plate & Wire Co. v. Commissioner, 17 B. T.
A. 1229, was also based upon the absence of a person authorized to act for
the corporation.

—17—

corporations are in accord with the Government's views
here expressed. See

Bnzard v. Commissioner, 28 B. T. A. 247.

Apart from the foregoing reasons, it is clear that the
appellant should not now be permitted to question the
validity of the assessments made against the Signal Gaso-
line Corporation. The appellant as sole stockholder of that
corporation acquired all its assets and, as will be shown
hereafter, became liable at law as well as in equity for its
unpaid taxes. The trustees of the Signal Gasoline Cor-
poration were the officers and directors of the appellant
and their actions before the Board of Tax Appeals were
for the benefit of and in order to protect the interests of
the appellant. In such circumstances, the appellant ought
not to be permitted to assail the validity of the Board pro-
ceedings and the assessments against the Signal Gasoline
Corporation. It has been so held in similar situations.

Warner Collieries Co. v. United States, 63 F. (2d)
34 (CCA. 6th);

Buzard v. Helvering, 77 F. (2d) 391 (App. D. C).

—18—

II.

The Statute of Limitations Does Not Bar These

Actions.

The appellant received the assets of the Signal Gasoline
Corporation subject to the express condition that it assume
payment of all taxes owing by the transferor. It thus
became liable at law not only for the direct tax liabilities
of the Signal Gasoline Corporation (American Equitable
Assitr. Co. of New York z>. Helvering, 68 F. (2d) 46
(C. C. A. 2nd) ; Helvering v. Wheeling Mold & Foundry
Co., 71 F. (2d) 749 (C. C. A. 4th)), but also for the tax
liabilities of that corporation as transferee of the Signal
Gasoline Company.

Continental Baking Co. v. Helvering, 75 F. (2d)
243 (App. D. C).

The appellant also became liable in equity for such taxes
since as sole stockholder of the Signal Gasoline Corporation
it acquired all the assets of that corporation.

United States v. Updike, 281 U. S. 489;

Phillips v. Commissioner, 283 U. S. 589 :

Pann v. United States, 44 F. (2d) 321 (C. C. A.
9th).

Prior to the Revenue Act of 1926 such transferee lia-
bility could only be enforced by an action at law or by a
bill in equity. That act, however, by Section 280(a)(1)
provided that transferee liability could be enforced in the
same manner and subject to the same limitations as that

—19—

of any delinquent taxpayer. Section 280(a)(1) reads as
follows :5

(a) The amounts of the following liabilities shall,
except as hereinafter in this section provided, be
assessed, collected, and paid in the same manner and
subject to the same provisions and limitations as in
the case of a deficiency in a tax imposed by this title
(including the provisions in case of delinquency in
payment after notice and demand, the provisions au-
thorizing distraint and proceedings in court for col-
lection, and the provisions prohibiting claims and suits
for refunds) :

(1) The liability, at law or in equity, of a trans-
feree of property of a taxpayer, in respect of the tax
(including interest, additional amounts, and additions
to the tax provided by law) imposed upon the tax-
payer by this title or by any prior income, excess-
profits, or war-profits tax Act.

The time within which assessments could be made
against transferees was specified in Section 280(b) (c)
and (d). [Appendix, infra.] It will be observed that
these subsections which followed Section 280(a) are con-
cerned with limitations upon assessments and not upon
collections. As the Supreme Court has stated, "the suc-

5Section 280 of the Revenue Act of 1926 is applicable to taxes imposed by
the Revenue Act of 1926 and prior acts. Essentially similar provisions appli-
cable to taxes imposed by subsequent Revenue Acts may be found in Section
311 of the Revenue Acts of 1928, 1932, 1934, 1936, 1938 and Section 311 of
the Internal Revenue Code. (See, also, amendments effected by Section 814
of the Revenue Act of 1938.)

—20-

ceeding paragraphs contain provisions of limitation in
respect of assessment, they contain none in respect of
collection."

United States v. Updike, 281 U. S. 489, 494.

In order to ascertain the period of limitation upon col-
lection against a transferee it is necessary to refer to Sec-
tion 280(a) which states that the liability of a transferee
shall be "* * * collected * * * in the same manner
and subject to the same provisions and limitations as in the
case of a deficiency in tax imposed by this title (including
* * * the provisions authorizing * * * proceedings
in court for collection * * *)." This section therefore
incorporates the limitation provision which is normally
applicable to all taxpayers, i. e.. Section 278(d). This
interrelation of Section 280(a) and Section 278(d) was
expressly recognized in United States v. Updike, supra.
In that case the Court concluded (p. 494) that "the effect
of the language above quoted from Section 280 is to read
into that section and make applicable to the transferee
equally with the original taxpayer, the provision of Sec-
tion 278(d) in relation to the period of limitation for the
collection of a tax."

Section 278(d) of the Revenue Act of 1926 provides:

Where the assessment of any income, excess-profits,
or war-profits tax imposed by this title or by prior
Act of Congress has been made (whether before or
after the enactment of this Act) within the statutory
period of limitation properly applicable thereto, such
tax may be collected by distraint or by a proceeding

—21—

in court (begun before or after the enactment of this
Act), but only if begun (1) within six years after
the assessment of the tax, or (2) prior to the expira-
tion of any period for collection agreed upon in writ-
ing by the Commissioner and the taxpayer.

Thus, a six-year limitation was placed upon proceedings in
court to collect tax assessments. The applicability of this
limitation to the consolidated cases at bar will now be
discussed.

Case No. 1461-Y (Originally 1461-R J)— This action
seeks to recover from the appellant the amount of taxes
assessed for the year 1924 against the Signal Gasoline
Corporation as an original taxpayer. The assessment was
made on October 1, 1932. [R. 56.] This suit was insti-
tuted September 9, 1938. [R. IS.] Since the action was
brought within six years after the assessment against the
Signal Gasoline Corporation, it was timely.

Revenue Act of 1926, Sees. 280(a) and 278(d).

See

United States v. Updike, supra;

United States v. Adams, 92 F. (2d) 395 (C. C. A.
5th).

Case No. 1460 -Y — This action seeks to recover from the
appellant the amount of taxes for the years 1923 and 1924
assessed against the Signal Gasoline Corporation as trans-
feree of the Signal Gasoline Company. These assessments
were made on September 10, 1932. [R. 53.] This suit
was instituted September 9, 1938. [R. 9.] Since the

—22—

action was brought within six years after the assessments
against the Signal Gasoline Corporation, it too was timely.

Revenue Act of 1926, Sees. 280(a) and 278(d).

See

City Nat. Bank v. Commissioner, 55 F. (2d) 1073
(C. C. A. 5th).

The only difference between these two actions is that the
former is to recover upon an assessment against the Signal
Gasoline Corporation for an original tax liability and the
latter is to recover upon an assessment against the Signal
Gasoline Corporation for a transferee tax liability. The
Revenue Act makes no distinction between these two situa-
tions and establishes a single rule of limitation with respect
to both. If the liability of a transferee is not made the
subject of an assessment then suit for collection from the
transferee may be instituted within six years after the,
assessment was made against the transferor. (See United
States v. Adams, supra.) If the liability of the transferee
is reduced to an assessment, then suit for collection from
the transferee may be instituted within six years from the
date of that assessment.6 See

City Nat. Bank v. Commissioner, supra.

Case No. 1461 -Y presents no problem. The Signal
Gasoline Corporation was liable for 1924 taxes. The
assessment for such taxes was timely made and within six

6The appellant in fact concedes that a suit against a transferee can be
instituted within six years after a transferee assessment has been made
against him. It views the assessment of October 1, 1932, as in effect a
transferee assessment against the trustees of the Signal Gasoline Corporation
and admits (Br. 28) that "The Government had six years from October 1,
1932, to sue the trustees * * *."

—23—

years thereafter suit for collection was instituted against
the appellant.

Case No. 1460-Y presents a slight variation from the
usual case since the tax assessments against the Signal
Gasoline Corporation were for transferee liabilities. It is
equally clear, however, that the six-year limitation applies.
Had the Signal Gasoline Corporation retained assets, the
Commissioner of Internal Revenue could have sued that
corporation within six years after the transferee assess-
ments were made against it. To urge that this period of
collection can be reduced by a voluntary transfer of the
assets of the Signal Gasoline Corporation to its sole stock-
holder is to urge a patent form of tax evasion. The Signal
Gasoline Corporation with respect to its transferee liabili-
ties was a "taxpayer/' The Supreme Court has said that
"it puts no undue strain upon the word 'taxpayer' to bring
within its meaning that person whose property * * *
is subjected to the burden." (United States v. Updike,
supra, p. 494. Cf. City of New York v. Feiring, decided
by the Supreme Court May 26, 1941.) The appellant as
transferee of the Signal Gasoline Corporation was a trans-
feree of a taxpayer within the meaning of Section 280(a),
and therefore could be sued for the collection of any
assessment which had been made within six years against
the Signal Gasoline Corporation.

The appellant's case rests upon United States v. Conti-
nental Bank, 305 U. S. 398. In that case in 1926, James
Duggan petitioned the Board of Tax Appeals to redeter-
mine certain proposed tax deficiencies asserted to be due
from him as transferee of corporate assets. In March,
1929, he died but no personal representative of the testator
or other person applied for substitution of a party to carry

—24—

on the proceeding and none was ordered. The Board's
order sustaining the Commissioner was entered in January,
1931. On February 14, 1931, the Commissioner of In-
ternal Revenue made a jeopardy assessment against James
Duggan. The administrator of his estate distributed the
assets to various beneficiaries including the Continental
National Bank and Trust Company as trustee. The United
States thereafter instituted suit against these beneficiaries
to recover the amount of the tax. In denying the Govern-
ment's right to a recovery, the Supreme Court (Mr. Justice
Stone and Mr. Justice Black dissenting) said that Jhs
statute was not broad enough to impose on "* * *
.testamentary transferees of the__es_fcate of the testator
* * * any liability on account of the assessment against
the testator" (p. 404) and moreover concluded that for
stated reasons the assessment against the testator had not
been made in time.

It seems clear that the decision in the Continental case
has no bearing on case No. 1461 -Y. That suit is simply
a suit against a transferee to recover an original tax lia-
bility of the transferor which had been assessed against
the transferor. It is not a suit against a transferee of a
transferee as the appellant urges on the theory that the
assessment was in effect against the trustees as transferees
of the Signal Gasoline Corporation. The assessment was
a determination of the tax liability of the Signal Gasoline
Corporation7 which under Section 281(b) of the Revenue

7See McPherson v. Commissioner, 54 F. (2d) 751, 752 (C. C. A. 9th) ;
United States v. Russell, 22 F. (2d) 249, 251 (C. C. A. 5th).

—25—

Act of 1926 was to be collected from the assets of the
corporation. Those assets were taken over by the appel-
lant and this suit instituted against it within six years
from the date of the assessment.

Nor is there any validity in the assertion that the Con-
tinental case controls in case No. 1460-Y. Here, the
assessments against the Signal Gasoline Corporation were
made timely, and whatever may be the propriety of deny-
iny recovery against the testamentary transferees of an
individual taxpayer does not apply where the transferee is
a corporation which as sole stockholder voluntarily ac-
quired the assets of another corporation. This is particu-
larly true where as here there was an express assumption
of the tax liabilities of the transferor. The Continental
case does not establish the broad ruling contended for by
the appellant and no valid reason has been suggested for
extending it beyond its facts. Certainly, it should not be
extended to cases involving the acquisition of corporate
assets by its sole stockholder, another corporation.

Where justice requires it the courts will not be bound by
the fiction of the corporate entity.8 Here, the transferor
and the transferee were separate entities in legal form
only. The appellant was the sole stockholder of the Signal
Gasoline Corporation. Its officers and directors were the
trustees of the Signal Gasoline Corporation. In the trans-
fer of the assets of the Signal Gasoline Corporation to the

8This principle has already been applied to the appellant in other litiga-
tion. See Wiethoff v. Refining Properties, Ltd., 8 Cal. App. (2d) 64, 68.

—26—

appellant, there was at no time any change in either bene-
ficial interest or control. It is therefore particularly appro-
priate that this Court should not permit the appellant to
maintain before it the legal fiction of two distinct entities
for the purpose of setting up the defense of the statute of
limitations and to avoid the payment of taxes justly due.
Cf.

Higgins v. Smith, 308 U. S. 473.

Conclusion.

It is submitted that the decision of the District Court
was correct and therefore that the judgment should be
affirmed.

Respectfully submitted,

Samuel O. Clark, Jr.,
Assistant Attorney General.

Sewall Key,
Edward First,
Special Assistants to the Attorney General.

William Fleet Palmer,
United States Attorney.

Armond Monroe Jewell,

Assistant United States Attorney.

July 22, 1941.

APPENDIX.

Statutes.

Revenue Act of 1926, c. 27, 44 Stat. 9:

Period of Limitation Upon Assessment and
Collection of Tax.

Sec. 277. (a) Except as provided in section 278 —

(2) The amount of income, excess-profits, and war-
profits taxes imposed by the Revenue Act of 1921, and
by such Act as amended, for the taxable year 1921 and
succeeding taxable years, and the amount of income
taxes imposed by the Revenue Act of 1924, shall be
assessed within four years after the return was filed,
and no proceeding in court without assessment for the
collection of such taxes shall be begun after the ex-
piration of such period.

iJf *■'' slf sic Sic sic sic sic sic

(b) The running of the statute of limitations pro-
vided in this section or in section 278 on the making
of assessments and the beginning of distraint or a
proceeding in court for collection, in respect of any
deficiency, shall (after the mailing of a notice under
subdivision (a) of section 274) be suspended for the
period during which the Commissioner is prohibited
from making the assessment or beginning distraint or
a proceeding in court, and for 60 days thereafter.
* * *******

Sec. 278. * * *

(d) Where the assessment of any income, excess-
profits, or war-profits tax imposed by this title or by
prior Act of Congress has been made (whether be-
fore or after the enactment of this Act) within the
statutory period of limitation properly applicable

— 2—

thereto, such tax may be collected by distraint or by
a proceeding in court (begun before or after the
enactment of this Act ) , but only if begun_ (I) within
six years after the assessment of the tax,, or (2) prior
to the expiration of any period for collection agreed
upon in writing by the Commissioner and the tax-
payer.

Claims Against Trx\nsferred Assets.

Sec. 280. (a) The amounts of the following lia-
bilities shall, except as hereinafter in this section pro-
vided, be assessed, collected, and paid in the same
manner and subject to the same provisions and limita-
tions as in the case of a deficiency in a tax imposed
by this title (including the provisions in case of delin-
quency in payment after notice and demand, the pro-
visions authorizing distraint and proceedings in cojirt.
. for collection, and the provisions prohibiting claims
and suit for refunds) :

(1) The liability, at law or in equity, of a trans-
feree of property of a taxpayer, in respect of the tax
\ including interestT^dditional amounts, and additions
to the tax provided by law) imposed upon the tax-
payer by this title or by any prior income, excess-
profits, or war-profits tax Act.

(2) The liability of a fiduciary under section 3467
of the Revised Statutes in respect of the payment of
any such tax from the estate of the taxpayer. Any
such liability may be either as to the amount of tax
shown on the return or as to any deficiency in tax.

(b) The period of limitation for assessment of any
such liability of a transferee or fiduciary shall be as
follows :

— 3—

(1) Within one year after the expiration of the
period of limitation for assessment against the tax-
payer; or

(2) If the period of limitation for assessment
against the taxpayer expired before the enactment of
this Act but assessment against the taxpayer was
made within such period, — then within six years after
the making of such assessment against the taxpayer,
but in no case later than one year after the enactment
of this Act.

(3) If a court proceeding against the taxpayer for
the collection of the tax has been begun within either
of the above periods, — then within one year after re-
turn of execution in such proceeding.

(c) For the purposes of this section, if the tax-
payer is deceased, or in the case of a corporation, has
terminated its existence, the period of limitation for
assessment against the taxpayer shall be the period
that would be in effect had the death or termination
of existence not occurred.

(d) The running of the period of limitation upon
the assessment of the liability of a transferee or fidu-
ciary shall, after the mailing of the notice under sub-
division (a) of section 274 to the transferee or fidu-
ciary, be suspended for the period during which the
Commissioner is prohibited from making the assess-
ment in respect of the liability of the transferee or
fiduciary (and in any event, if a proceeding in re-
spect of the liability is placed on the docket of the
Board, until the decision of the Board becomes final),
and for 60 days thereafter. (As amended by Sec. 505
of the Revenue Act of 1928.)

(e) This section shall not apply to any suit or other
proceeding for the enforcement of the liability of a

transferee or fiduciary pending at the time of the
enactment of this Act.

(f) As used in this section, the term "transferee"
includes heir, legatee, devisee, and distributee.

Fiduciaries.
Section 281. * * *

(b) Upon notice to the Commissioner that any per-
son is acting in a fiduciary capacity for a person sub-
ject to the liability specified in section 280, the fidu-
ciary shall assume, on behalf of such person, the
powers, rights, duties, and privileges of such person
under such section (except that the liability shall be
collected from the estate of such person), until notice
is given that the fiduciary capacity has terminated.

California Civil Code as amended in 1921 (Kerr's
Biennial Supplement, Annotated (1921), p. 465) :

§400. Directors Trustees of Creditors, on
Dissolution. Unless other persons are appointed by
the court, the directors or managers of the affairs of
a corporation at the time of its dissolution are trus-
tees of the creditors and stockholders or members of
the corporation dissolved, and have full powers to
settled the affairs of the corporation, collect and pay
outstanding debts, sell the assets thereof in such man-
ner as the court shall direct, and distribute the pro-
ceeds of such sales and all other assets to the stock-
holders. Such trustees shall have authority to sue for
and recover the debts and property of the corporation,
and shall be jointly and severally personally liable to
its creditors and stockholders or members, to the ex-
tent of its property and effects that shall come into
their hands. * * *

No. 9813
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Signal Oil and Gas Company,

Appellant,

vs.

United States of America,

Appellee.

REPLY BRIEF FOR APPELLANT.

Melvin D. Wilson,
819 Title Insurance Building, Los Angeles,
Attorney for Appellant.

II E s

■ ... .* V* v. 3*-

1941

Parker -& Baird Company, Law Printers, Los Angeles.

TOPICAL INDEX.

PAGE

I.

The alleged assessment against Signal Gasoline Corporation is
invalid 1

II.

The statute of limitations bars these actions 5

Case No. 1460-Y 5

Case No. 1461-Y 10

TABLE OF AUTHORITIES CITED.

Cases. page

Brandon v. Umpqua Lumber Co., 166 Cal. 322, 136 Pac. 62 2

Buzard v. Helvering, 77 Fed. (2d) 391 1, 2, 3, 4

Crossman v. Vivienda Water Co., 150 Cal. 575, 89 Pac. 335 2

Higgins v. Smith, 308 U. S. 473 9

McPherson v. Commissioner, 54 Fed. (2d) 751 1

Oklahoma Natural Gas Co. v. State of Oklahoma, 273 U. S.

257 2

Standifer, G. M., Construction Corp. v. Commissioner, 78 Fed.

(2d) 285 1, 2

United States v. Continental National Bank & Trust Co., 305

U. S. 398 2, 6, 10

Van Antwerp v. United States, 92 Fed. (2d) 871 11

Warner Colleries Co. v. United States, 63 Fed. (2d) 34 3

WiethorT v. Refining Properties, Ltd., 8 Cal. App. (2d) 64 8

Statutes.

Civil Code of California, Sec. 400 11

Revenue Act of 1926, Sec. 278 (d) 5, 11

Revenue Act of 1926, Sec. 280 5

Textbook.

7 California Jurisprudence 37-38 2

No. 9813
IN THE

United States Circuit Court of Appeals

FOR THE NINTH CIRCUIT

Signal Oil and Gas Company.

vs.

United States of America,

Appellant,

Appellee.

REPLY BRIEF FOR APPELLANT.

I.

The Alleged Assessments Against Signal Gasoline
Corporation Are Invalid.

Appellee cites no authority for its contention that the
alleged assessments against Signal Gasoline Corporation
were valid, excepting McPherson v. Commissioner, 54
Fed. (2d) 751, and Buzard v. Helvering, 77 Fed. (2d)
391.

As shown in appellant's opening brief, the McPherson
case has been substantially overruled by this Court in
G. M. Standifer Construction Corp. v. Commissioner,
78 Fed. (2d) 285, and rendered inapplicable to cases of

— 2—

this type by the decision of the Supreme Court of the
United States in United States v. Continental National
Bank & Trust Co., 305 U. S. 398.

The decision in Buzard v. Helvering, supra, is not in
point at all, as there the proceedings in the Court of
Appeals of the District of Columbia were by the statu-
tory trustees as an entity and not by the corporation. See
page 29 of appellant's opening brief.

On page 15 of its brief, appellee attempts to distinguish
the case of G. M. Standifer Construction Corp v. Com-
missioner, supra, by stating that it was a fully dissolved
corporation and without either statutory or judicially
designated trustee, attempting, nevertheless, to litigate as
a live corporation. That decision establishes a principle
which appellant is relying on in this proceeding, namely,
that when a corporation is dissolved and there is no statu-
tory provision for continuing its corporate existence for
any purpose, the dissolution of the corporation absolutely
destroys it and all pending actions against the corporation
are abated, and the corporation is thereafter incapable of
acting or suing or being sued. See, also, Oklahoma
Natural Gas Co. v. State of Oklahoma. 273 U. S. 257;
Crossman v. Vivienda Water Co., 150 Cal. 575, 89 Pac.
335, and Brandon v. Umpqua Lumber Co., 166 Cal. 322,
136 Pac. 62, 7 Cal. Jur. 37-38.

The only difference between the Standifer case and the
case at bar was that in the Standifer case the corporation
continued in existence for five years, acting through its
statutory trustees, after which it became entirely de-

— 3—

stroyed, whereas in the case at bar, Signal Gasoline Cor-
poration became destroyed immediately, but a new entity,
its statutory trustees, was set up to take over the assets
and liabilities. In each case, however, the corporation
was destroyed, one at the end of five years and the other
immediately.

On page 17 of its brief, appellee contends that appellant
should be estopped from questioning the validity of the
alleged assessments made against the Signal Gasoline
Corporation. Appellee cites Warner C oiler ies Co. v.
United States, 63 Fed. (2d) 34; Buzard v. Helvering, 77
Fed. (2d) 391.

In Warner C oiler ies Co. v. United States, supra, there
were grounds for estoppel, whereas in the case at bar,
there are no grounds for estoppel, as is shown by the
fact that appellee has not squarely met the issue of estop-
pel. It has merely asked for the benefits of the doctrine
of estoppel, without squarely meeting the issue or dis-
cussing the subject.

In Warner Colleries Co. v. United States, supra, a peti-
tion was filed by the dissolved corporation in its name,
which petition was signed by persons who designated them-
selves as officers of the corporation, and the corporate seal
was used. No statement was made in the petition that the
company had been dissolved. Before the Board of Tax
Appeals, also, the representatives of the corporation signed
a stipulation, substantially reducing the taxes and agree-
ing that the taxes could be assessed against the corpora-
tion. Furthermore, the successor corporation which was

held liable for the tax, ratified the acts of its directors who
signed the petition as officers of the dissolved corporation.
Consequently, the Board could safely proceed on the
theory that it was dealing with an existing corporation.
Naturally that corporation or its successors could not con-
tend that the Board was put on notice of the dissolution,
and therefore could not contend that the proceedings were
void. There was a clear case of estoppel on the basis of
the facts involved.

As to Buzard v. Helvcring, also cited by appellant on
page 17, as authority for its estoppel plea, as has been
previously shown the proceeding there was not against
the corporation but against the statutory trustees as an
entity, hence it is not a case which holds that an assess-
ment can be made against a dissolved corporation because
of the estoppel of its representatives. No suit of a cor-
poration was involved, but it was a suit against the new
entities, the statutory trustees.

— 5—

II.

The Statute of Limitations Bars These Actions.

Appellant, on pages 18 to 23, inclusive, of its brief,
merely points out a few matters which have always been
understood in this case, namely, that appellant, except for
the statute of limitations, is liable under law and equity
for the additional taxes (if any) of Signal Gasoline Com-
pany and Signal Gasoline Corporation; that Section 280
of the Revenue Act of 1926 has nothing to do with suits
without assessment; that the statute of limitations in-
volved in the case at bar is Section 278 (d) of the Revenue
Act of 1926; that if the alleged assessments made against
Signal Gasoline Corporation were valid, as to case No.
1460-Y, the only question remaining is whether under
Section 278 (d), the Government had six years after an
assessment against a first transferee to sue a second
transferee, and as to case No. 1461 -Y, one question is the
same as that stated with respect to case No. 1460-Y, and
the further question is whether the statutory trustees
of Signal Gasoline Corporation constituted the first trans-
ferees and appellant the second transferee of the assets
of Signal Gasoline Corporation.

Case No. 1460-Y.
As to case No. 1460-Y, involving the taxes of Signal
Gasoline Company, allegedly assessed against Signal Gaso-
line Corporation, and sought to be recovered in suit against
appellant, the appellant sets up two defenses.

The appellant contends that the suit is barred for two
reasons : First, that the alleged assessment against Signal

Gasoline Corporation was void; and second, that even if
it was valid, it did not give the Government six years
within which to sue appellant, because appellant is the
transferee of the transferee of Signal Gasoline Company,
and the case of United States v. Continental National-
Bank & Trust Co., supra, decided that Section 278 (d)
does not give the Government six years within which to
sue the transferee of a transferee.

The appellee is apparently not satisfied with the de-
cision of the Supreme Court in United States v. Conti-
nental National Bank & Trust Co., seemingly casting
some doubt upon its present validity, on pages 24 and 25
of the brief. Appellee also, on page 25 of its brief, says
the Continental case is not applicable, except to transferees
of an individual taxpayer, and bases this contention again
on its plea of estoppel. But of course there was as strong
an equity in favor of the Government in the United
States v. Continental case as there is in the case at bar;
that is to say, the tax was obviously owed in the Con-
tinental case, but the court held that the Government was
delinquent in proceeding against the proper transferees.
The tax that the Government lost there was huge, amount-
ing to over $295,000 with interest. Furthermore, the
original taxpayer there, as in the case at bar, was a
corporation.

The appellee says, on page 25 of its brief, that the
fiction of corporate entity will be disregarded if justice
requires it. The appellee impliedly contends that justice
does not require the use of the statute of limitations
specifically enacted by Congress. As a matter of fact,
justice requires that there be a repose with respect to
litigation, and that principle is just as important to the
proper working of the national fisc as is the collection

of a tax in an individual case. The citizens of the United
States have to have confidence in the taxing authorities
and the courts construing tax statutes, including confidence
in the protection afforded by the statute of limitations, or
they will rely upon their own ingenuity for self protection,
thereby requiring a great deal more tax litigation, which
would be ruinous to the national fisc. No government
can afford to have litigation with respect to but a very
small percentage of its cases, but if people lose confidence
in the tax tribunals to fairly decide all questions of taxa-
tion, including questions of the statute of limitations, the
result would be very detrimental to the Government.

It need not be pointed out to this Court that there is a
statute of limitations on suits for recovering taxes over-
paid, nor that the Government very diligently invokes the
statute of limitations on every possible occasion. Naturally,
the Government pleads the statute of limitations in those
cases because justice requires it.

What is justice for the Government is justice for the
taxpayer. Furthermore, taxes are not determined by the
application of equitable principles, but by the application
of the statutory language. An exception is made in
cases calling for the doctrine of estoppel, but the facts of
the present case do not invoke the principle of estoppel
in the Government's favor.

Appellee says, on pages 25 and 26 of its brief, that the
various corporate entities involved in this matter, were
separate entities in legal form only, and that in transfer-
ring the assets from one to another there was no change
at any time in either beneficial interests or control, and
that the Court should disregard the legal fiction of
separate entities, and prevent appellant from setting up the
defense of the statute of limitations.

This again is a plea for estoppel without squarely meet-
ing the issues involved in the question of estoppel, and
without proving the various elements of estoppel to be
present. The question of estoppel is gone into quite ex-
tensively in appellant's opening brief. The facts were all
fully and clearly known by the appellee, within proper
time for it to act. The corporations were all separate
and tax liabilities were separately recognized by appellee;
the various procedures in the audit of the return were
entirely separate, and appellee is simply trying to put the
blame on others for its own delinquencies. When the
Government brings suit in 1938 for 1923 and 1924 taxes
of corporations which had long been dissolved, of which
dissolution the Government had full and timely notice, it
would seem that it was a proper case for the application
of the statute of limitations to put a repose to the said
litigation.

As can be seen from any daily paper, the stock of ap-
pellant is listed upon the stock exchange and it may be
assumed that its stockholders constantly change from time
to time./lt would be entirely inequitable to hold appel-
lant liable for the tax liabilities of other corporations
which accrued seventeen and eighteen years ago, on ac-
count of transfers which occurred eleven years ago, be-
cause of the acts of a few of appellant's stockholders, who
were trustees of predecessor corporation, taken approxi-
mately ten years ago.

Appellee, on page 25 of its brief, cites the case of
Wiethoff v. Refining Properties, Ltd., 8 Cal. App. (2d)
64, as authority for the proposition that the Court should
look through the fiction of corporate entities.

The cited case has no bearing on the situation involved
in the case at bar. Entirely different issues were involved.

— 9—

Furthermore, none of the companies involved in the case
at bar, except appellant, were involved in the cited case.
Other corporations involved in the cited case were Signal
Oil and Gas Company of California, Pacific Service Sta-
tions and Refining Properties, Ltd., all apparently organ-
ized after Signal Gasoline Company and Signal Gasoline
Corporation had been dissolved. The situation there in-
volved several companies which were in existence at the
same time. In the case at bar, the situation involved
corporations which had been dissolved before, or about
the time appellant was organized.

Appellant also cites, on page 26 of its brief, Higgins
v. Smith, 308 U. S. 473, as authority for the proposition
that separate corporate entities in the case at bar should
be disregarded.

But in Higgins v. Smith, supra, the question was the
deductibility of a loss purportedly sustained by the sole
stockholder of a corporation, on the sale of securities to
that company. There a jury had found that the corpora-
tion was created for tax savings purposes of the sole
stockholder and was simply an agent of the taxpayer.
There, also, the issue involved was the matter of a deduc-
tion against gross income. The courts have uniformly
held that in claiming deductions, the statute must be
strictly construed and the taxpayer must prove that his
claim comes strictly within the statutory language.

In the case of the statute of limitations, however, the
courts have ruled that questions of doubt must be ruled
strictly against the Government, and in favor of the tax-
payer. See pages 31 and 32 of appellant's opening brief.

In Higgins v. Smith, the taxpayer deliberately sought
to save taxes by setting up a corporation and had that

—10—

subject uppermost in his mind in making transactions
-with it. In the case at bar. all transactions involved were
regular business transactions involving a substantial num-
ber of persons with no deliberate attempt or consciousness
of tax saving, or tax avoidance.

Case No. 1461-Y.

The principal contentions of the appellant with respect
to Case No. 1461-Y can be restated as follows:

1. That the alleged assessment made against Signal
Gasoline Corporation was invalid ; hence no tax was shown
to be due, and no six-year period for bringing suit was
started by the void assessment;

2. That even if it were valid, it would not give the
Government six years within which to sue a transferee
of a transferee;

3. Appellant is the transferee of a transferee of the
assets of Signal Gasoline Corporation, because its statu-
tory trustees were the first transferees of the assets of
Signal Gasoline Corporation, and appellant received the
assets from the first transferees, namely, the statutory
trustees of Signal Gasoline Corporation.

Appellee does not cite any authority in answering the
last contention listed above. As shown on pages 27 to
30, inclusive, of appellant's opening brief, the statutory
trustees of Signal Gasoline Corporation constituted the
first transferees. Consequently, appellant was the second
transferee of the assets of Signal Gasoline Corporation
and under United States v. Continental National Bank

—11—

and Trust Co., supra, the Government did not have six
years after the alleged assessment was made against the
first transferee to sue appellant, the second transferee of
the assets of Signal Gasoline Corporation.

As pointed out in appellant's opening brief, the appellee
made two mistakes of law and is now trying to shift the
loss and blame to other persons. These mistakes were the
following: First, after having been advised that Signal
Gasoline Corporation had been dissolved, it failed to
properly construe Section 400 of the California Civil
Code, to the effect that the dissolution of a California
corporation completely destroyed it. Appellee thereafter
continued to regard the dissolved corporation as being in
existence, instead of dealing with its statutory trustees as
a separate entity; second, appellee construed Section 278
(d) of the Revenue Act of 1926 as giving it a six-year
period within which to sue the transferee of a transferee
of the assets of a taxpayer. This was erroneous, as shown
by the decision of the Supreme Court of the United States,
in United States v. Continental National Bank and Trust
Co., supra.

The appellee made these mistakes of law and took the
wrong procedure and the present suits are barred by the
statute of limitations, and appellee should not be per-
mitted to do what this Court barred it from doing in
Van Antwerp v. United States, 92 Fed. (2d) 871. There
this Court said:

"* * * It was incumbent upon the Commissioner
to reaudit her income for that year as soon as the

—12—

Malcom decision advised him of his error. This for
the protection of the Treasury, which otherwise
would lose what she owed, because of the Govern-
ment's wrong interpretation of the law. Fourteen
months remained for such reaudit and deficiency as-
sessment, during which the Government did nothing.
Having failed to do so, it seeks to transfer the loss
from that neglect to the appellant taxpayer. "

In conclusion it is submitted that the decisions for the
District Court were incorrect and that the judgments
should be reversed.

Dated: July 31, 1941.

Respectfully submitted,

Melvin D. Wilson,

Attorney for Appellant.