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use in the latter's business, was the same in

specifications and compound as a product

known as Stoddard's solvent, or was like

a solvent, made according to the Stoddard

specifications, in that its flash point was

between 96 and 105 degrees Fahrenheit;

plaintiff's complaint alleging that the product

so sold by the defendant had a flash point

of 45 degrees Fahrenheit, with the result

that fumes or vapor emitted from it at or

above that temperature are subject to ex-

plosion or combustion by contact with a

flame or spark, and that, while plaintiff was

using in his employer's cleaning plant such

product furnished by defendant, that product

exploded at a temperature less than 50 de-

grees Fahrenheit, and caused a fire which

resulted in the complained-of injuries to

The defendant's answer, filed

plaintiff.

after the overruling of an exception of no
cause of action, put in issue the material
allegations of the complaint. In the trial,
plaintiff introduced evidence relied on to
sustain the cause of action asserted, and
the defendant introduced evidence tending
to prove that, by reason of defects in the
machinery of plaintiff's employer, friction

emitted which caused the explosion, and

was created which resulted in sparks being

which would have caused an explosion though

the solvent used at the time of the explosion

had had a flash point in excess of 96 degrees

Fahrenheit. The defendant complains of ac-

tion of the court in admitting evidence ob-

jected to and in giving and refusing instruc-

tions to the jury.

[1, 2] The cause of action asserted was based

on claims which, in substance, were that de-
fendant was in fault in furnishing, instead
of a solvent whose flash point was at a tem-
perature not less than 96 degrees Fahrenheit,
a solvent whose flash point was at a tem-

cause of injury to plaintiff, and the burden was on the plaintiff to prove that the explosion and consequent injury to plaintiff were due to the flash point of the solvent furnished by defendant being less than 96 degrees Fahrenheit. A finding that the explosion was due to the flash point of that solvent being less than 96 degrees Fahrenheit would not be warranted in the absence of evidence tending to prove that the temperature at the time and place of the explosion was less than 96 degrees Fahrenheit, as the difference between the actual flash point of defendant's product and what defendant represented its flash point to be was not a cause of the injury complained of unless fumes or vapor emitted from that product when it was subjected to a temperature lower than its represented flash point was a cause of the explosion which resulted in the injury complained of. No allegation or proof indicated that defendant was under any duty to protect plaintiff from the risk involved in his working as an employee where and when the solvent furnished by the defendant was subjected to a temperature as high as 96 degrees Fahrenheit. An essential element of the cause of action asserted was the existence, at the time and place of the explosion which resulted in plaintiff's injury, of a temperature less than 96 degrees Fahrenheit, and the burden was on the plaintiff to prove that fact.

[3] The evidence as to the temperature at the place where the explosion occurred was testimony which was admitted over defendant's objection. A witness for the plaintiff was asked the following question: "Mr. Overcash, did you make a test of the temperature of the room of the Model Cleaners & Dyers, Incorporated, where this explosion occurred, while the plant was in operation?" Defendant's counsel objected to this question and the answer sought, for the reason that it was not admissible until its relevancy was indicated by proof that the temperature was taken at a time sufficiently approximating the date of the accident. After that objection was overruled and that ruling was excepted to, the witness, in response to the question, stated, in substance, that he took the temperature close to the tumbler over the washer while the machinery in the dry-cleaning room was in operation, and the thermometer showed 88 close to the line shaft. We think the question and the answer sought were subject to objection on the ground stated, especially as the evidence elicited was unaccompanied by evidence having any tendency to prove that the circumstances attending the deposed to taking of the temperature

were substantially the same as those attending the explosion which resulted in plaintiff's injury. The evidence objected to and elicited furnished no substantial support for a finding as to the temperature of the room in which the explosion occurred at the time of, or in the circumstances attending, that explosion. Evidence as to the temperature in that room at an unidentified time, unaccompanied by any showing or offer to show that the conditions existing when the temperature was taken were the same or similar to those existing when the explosion occurred, was lacking in relevancy. Nothing in the record negatives the conclusion that the conditions affecting the temperature in the room mentioned when the deposed to taking of the temperature occurred were substantially different from those existing when the plaintiff was injured.

[4] The court refused to give the following instruction to the jury, requested by the defendant:

"If you do find that there were misrepresentations concerning the flash point of the commodity sold by the defendant to the Model Cleaners & Dyers, Incorporated, to hold the defendant liable you must find further that the explosion complained of would not have occurred if the product sold had actually been as represented and had had a flash point 96 degrees Fahrenheit."

The court's charge to the jury did not embody the proposition stated in the just quoted requested instruction or the equivalent of that proposition. The fault charged against the defendant being the furnishing by it of a solvent having a flash point substantially lower than the alleged represented flash point, and there being no allegation to the effect that any breach of duty owing by the defendant to the plaintiff was involved in plaintiff being exposed to the danger of an explosion by reason of the product furnished by defendant being subjected to a temperature of not less than 90 degrees Fahrenheit, a breach of the duty charged, and that such breach was a proximate cause of the injury complained of would not be shown by evidence having no tendency to prove that the explosion in question would not have happened if the product furnished by defendant had actually been as represented and had had a flash point at not less than 96 degrees Fahrenheit. The cause of action asserted could not have been sustained by evidence which failed to negative the conclusion that, at or about the time of the explosion in question, the product furnished by defendant was subjected to a tem

26 F.(2d) 17

with some of stockholders, deferring payment until there should be a sufficient fund accumulated in the treasury to operate business successfully, held "borrowed capital," and properly excluded from invested capital, under Revenue Act 1918, § 326 (Comp. St. § 63366i), in determining income and excess profit taxes. Petition for Review of Decision of United

of Louisiana.

Original petition by Southport Mill, Limited, against the Commissioner of Internal Revenue for review of a decision of the United States Board of Tax Appeals for the District of Louisiana, holding petitioner liable for deficiencies in income and excess profit taxes. Decision affirmed, without prejudice to apply for an allowance for interest on borrowed capital.

perature not lower than 96 degrees Fahrenheit. In the absence of such evidence, a finding that the alleged difference between the actual and the represented flash point of defendant's product was a proximate cause of plaintiff's injury was not warranted. It was incumbent on the plaintiff to adduce evidence excluding the inference that at the time and place of the explosion the product States Board of Tax Appeals for the District furnished by the defendant was subjected to a temperature of not less than 96 degrees Fahrenheit, as, if it then was subjected to such a temperature, the risk involved was not chargeable to a breach of the alleged duty owing by the defendant to the plaintiff. We are of opinion that the burden was on the plaintiff to establish by a fair preponderance of the evidence that the explosion and consequent injury would not have happened if the product furnished by the defendant had actually been as represented, and that the court erred in making the ruling under consideration. Morrison v. Lee, 16 N. D. 377, 113 N. W. 1025, 13 L. R. A. (N. S.) 650. Evidence would not be such as is required to sustain the cause of action asserted unless it shows that the explosion in question would not have happened if the solvent furnished by the defendant had been as the defendant represented it. Under the issues raised, it was pertinent to determine whether the circumstances of the explosion were or were not such that the explosion would have happened even if the flash point of the solvent furnished by defendant was between 96 and 105 degrees Fahrenheit.

Other rulings complained of need not be passed on, as the questions presented may not arise in another trial.

Because of the above-mentioned errors, the judgment is reversed, and the cause is remanded, with direction that a new trial be granted.

Reversed.

SOUTHPORT MILL, Limited, v. COMMIS-
SIONER OF INTERNAL
REVENUE.

Circuit Court of Appeals, Fifth Circuit.
May 10, 1928.

No. 5250.

Internal revenue 7(3), 9(27)-Cash dividends retained pursuant to stockholders' agreement deferring payment held "borrowed capital," and properly excluded in determining income and excess profit taxes (Revenue Act 1918, 326 [Comp. St. § 63366i]).

Cash dividends declared by corporation, part of which were retained pursuant to agreement 26 F. (2d)-2

Nicholas Callan, of New Orleans, La., and E. Barrett Prettyman, of Washington, D. C. (Karl D. Loos, of Washington, D. C., and Preston B. Kavanagh, of Chicago, Ill., on the brief), for petitioner.

Mabel Walker Willebrandt, Asst. Atty. Gen., and C. M. Charest, Gen. Counsel Bureau of Internal Revenue, and M. N. Fisher, Sp. Atty. Bureau Internal Revenue, both of Washington, D. C. (Sewall Key, Sp. Asst. Atty. Gen., on the brief), for respondent.

Before WALKER, BRYAN, and FOSTER, Circuit Judges.

BRYAN, Circuit Judge. This is a petition for review of a decision by the United States Board of Tax Appeals, which held petitioner liable for deficiencies in income and excess profit taxes for the fiscal years ending on May 31 in 1918 and 1919. That decision excluded from invested capital two amounts, one of $100,000 and the other of $197,500, and classified those amounts as borrowed capital. The Revenue Act of 1918, in force during the period involved, by 'section 326 (Comp. St. § 633618i) includes as invested. capital paid-in surplus, but excludes borrowed capital. Petitioner insists that each of the amounts named was paid-in surplus, and should have been included in invested capital.

Petitioner is a Louisiana corporation, with a capital stock of $50,000, of which C. B. Coates and wife owned 25 per cent., A. D. Geoghegan and wife, Charles Monsted and wife, H. Guldmann, and A. G. Petersen owned 50 per cent.; the New Orleans Export Company owned the remaining 25 per cent., which was controlled by Monsted, Guldmann, and Petersen. In 1916, the corporation, although it was making money, was so heavily indebted that it could not incur any more unsecured

liabilities without violating Act 267 of the 1914 Legislature, which provides that a trading corporation shall not incur unsecured liabilities greater than twice the amount of its fully paid-up capital and surplus. Mr. and Mrs. Coates wanted a large cash dividend declared, but the other stockholders were opposed to doing that, because the corporation did not have the cash necessary to conduct its business.

To satisfy Coates and his wife, it was agreed that they should receive cash dividends at the end of each fiscal year on May 31, and the individual stockholders owning 50 per cent. of the stock agreed in writing with the corporation that annual dividends to all stockholders should be declared, but that the dividends payable to those signing the agreement should be deferred until such time as in the opinion of the corporation there should be accumulated in its treasury a fund sufficient to operate the business successfully, when they should receive their dividends in cash, together with 6 per cent. per annum on their share of the dividends, payment of which had been postponed. The amount so to be retained in the treasury is described as paid-in surplus. Mr. Geoghegan, who was president, on behalf of himself and associates who signed the agreement, and who together owned 50 per cent. of the stock, paid into the treasury of the company $100,000 in installments of $65,000 on June 1, 1917, and $35,000 on June 1, 1918. Geoghegan testified that there was no written agreement in regard to the $100,000, but that the purpose of paying it was to furnish the company with additional surplus to enable it to function until such time as it was able to liquidate that surplus. On May 1, 1916, a resolution declaring a dividend of $250,000 was adopted, and on May 9, 1917, another resolution declaring a dividend of $145,000 was adopted.

The dividends were paid in cash to Coates and wife, and presumably to the New Orleans Export Company. The parties to the agreement were credited with half the dividends, but the total of these amounts, $197,500, was credited to "paid-in surplus special as per agreement." In May, 1919, resolutions were adopted authorizing payment to the stockholders whose dividends had been deferred, in two amounts of $100,000 and $197,500, but

no interest or so-called extra dividend of 0 per cent. was paid on either amount.

It is clear that the $100,000 was borrowed money. It was not surplus, because it was not to be paid back to all stockholders alike, but only to those who furnished it. When the corporation paid it back, it discharged a debt which it owed to the stockholders who advanced the money. To designate this fund as surplus did not make it so, or change its character. The intention of the parties not to treat this fund as a corporate asset is indicated by the fact that it was returned to those from whom it was obtained. The amount of $197,500 is the exact total of 50 per cent. of dividends deferred during the fiscal years 1918 and 1919. The stockholders who agreed that their dividends be deferred were in the meantime the creditors of the corporation. The effect of the agreement was to make a loan to the corporation of funds of some of the stockholders.

The provision for the payment of 6 per cent. on the deferred dividends was for the purpose of paying interest on the loan, so as to adjust satisfactorily between the stockholders the payment of cash dividends to Coates and his wife. It is argued as to each of the amounts involved that there was no definite time stated for liquidation, but in each instance the time was ascertainable, and payment was required to be made when the company's financial condition was satisfactory. Even if the time were indefinite, the only effect would be that the loan would be uncollectible. The effect would not thereby be produced of changing an unenforceable loan into a paid-in surplus.

Petitioner contends that the accrued interest provided in the agreement would equal the amount of the deficiency for which it was held liable, and therefore that the decision under review was erroneous. Whether the amounts should be treated as invested or borrowed capital was the question at issue. Petitioner did not proceed before the Board of Tax Appeals upon the theory that it was entitled to deduct interest from income.

The decision under review is affirmed, without prejudice to petitioner to make application to the Board of Tax Appeals for an allowance for interest on borrowed capital. Affirmed.

SHEPARD et al. v. REED et al.

26 F.(2d) 19

Circuit Court of Appeals, Sixth Circuit. May 10, 1928.

No. 5003.

1. Appeal and error 901-Appellant, seeking reversal on questions of fact on which evidence was conflicting, must show that judgment is against decided preponderance of evidence.

Where reversal is sought on questions of fact, in reference to which the evidence was conflicting, appellant has burden of showing that judgment of District Court is against a decided preponderance of the evidence.

2. Ferries 32-Operators of ferry as common carriers for hire must equip ferryboats with appliances reasonably necessary for safety of passengers and property.

The operators of a ferry are common carriers for hire, and as such are required to equip their ferryboats with such guards rails, chains, barriers, and other appliances as are reasonably necessary to secure the safety of passengers and property in transit.

3. Evidence 574-Testimony based on observing driver at time of accident cannot be accepted as preponderance of evidence on question of driver's experience.

In action for death of one driving truck onto ferryboat, and going into river and drowning, testimony of witnesses as to decedent's experience or lack of experience, based upon what they observed at time of accident, cannot be accepted as a preponderance of evidence on question of decedent's experience in handling truck, in disregard of testimony of witnesses who had positive knowledge that decedent had been driving same truck for four or five months prior to accident.

4. Ferries 32-Ferrymen are chargeable with knowledge that animals and automobiles may not always be under adequate control.

Ferrymen are chargeable with knowledge that animals and automobiles may not at all times be under adequate control.

5. Ferries 32-Theory based on proper barriers having been provided cannot excuse operators of ferry from duty to provide sufcient barriers.

Mere theory or conjecture as to what would have happened if proper barriers had been provided cannot excuse owners and operators of ferry from exercise of due care to provide barriers of sufficient strength to afford reasonable protection to property and passengers. 6. Ferries

33-Evidence held to sustain judgment for death of one drowned on truck going over ferryboat into river.

In action for death of one driving truck onto ferryboat, and continuing into river and being drowned, evidence as to difference in height between decks of embarkation barge and ferry barge, width of ferry barge, and lack of substantial barrier held sufficient to sustain judgment for plaintiff.

Appeal from the District Court of the United States for the Western District of Tennessee; Harry B. Anderson, Judge.

Libel by Lyman Reed and another, by their next friend, Mrs. F. A. Reed, against F. H. Shepard and others. Judgment for libelants, and respondents appeal. Affirmed.

Wils Davis, of Memphis, Tenn. (Davis, Costen & Wallace, of Memphis, Tenn., L. Jerre Cooper, of Dyersburg, Tenn., and C. E. Bragg, of Caruthersville, Mo., on the brief), for appellants.

John R. Walker, Jr., of Memphis, Tenn. (John E. McCall, of Memphis, Tenn., and Neill Reed, of Blytheville, Ark., on the brief), for appellees.

Before DONAHUE and MOORMAN, Circuit Judges, and HICKENLOOPER, District Judge.

DONAHUE, Circuit Judge. The appellants operated a ferry across the Mississippi river between Cottonwood Point, Mo., and the Tennessee shore. F. H. Shepard and I. L. Shepard owned the motorboat. J. J. Finley and a barge towed by it. J. M. Taylor and E. M. Huffman owned the motorboat Louise and a barge towed by it. These motorboats and their barges were used jointly in the operation of this ferry, and the profits arising therefrom were divided between the respective owners.

F. A. Reed desired transportation for himself and his motor truck from Cottonwood Point, Mo., to the Tennessee side of the river, and for that purpose drove his truck to the place on the Missouri side where the ferry received passengers and property for transportation. He left his truck on the bank, walked down to the ferry, and asked the respondent's agents and employees in charge of its operation if they were ready to receive him. They told him they were ready, and directed him to drive his truck down the embankment and on the ferry barge. The barge towed by the J. J. Finley was moored next to the shore and used as a landing and embarkation barge, and the Louise and her barge, then being used by respondents to transport passengers, automobiles, and other property across the river, were lashed to the river side of the Finley barge, so that it became necessary for passengers and vehicles to cross the Finley barge to reach the Louise barge. As the barges were so positioned in relation to each other, the deck or platform of the Louise barge was several inches higher than the deck of the Finley barge, and this difference in height was considerably increas

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