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other stock belonging to Mrs. Pierce from going into the rice fields. The Apex Company conveyed the three acres to the Southwestern Oil & Steamship Company in June, 1902. After that Roy N. Burgess foreclosed a trust deed against the Southwestern Oil & Steamship Company, which authorized the sale of the three acres of land. Burgess appointed M. S. Duffie as his attorney in fact,

and Duffie demanded of Mrs. Pierce that she either move or buy the land she was occupying. She agreed to purchase it, and a deed was executed to her by Duffie, describing the land exactly as it was described in the deed to the Apex Company, and also reserving the mineral rights as shown in that deed. Appellees deraign title to the minerals from McFaddin et al.

Fred Pierce did not testify. It is very plain from Mrs. Pierce's testimony in the record that she never claimed and did not occupy any land except the three acres belonging to the Apex Company. She did not mark the corners or run the lines on the ground of the five acres she now claims and such possession as she had was adverse to the Apex Company, which did not include the mineral rights that had been reserved to McFaddin et al. After accepting the deed she continued to reside on the land and returned only three acres for taxation.

The evidence is not sufficient to show adverse possession to the five acres claimed by appellants, and hardly sufficient to show it as to the three acres. We think the title of Mr. and Mrs. Pierce must be limited to the surface rights of the three acres described in the deed. 10 R. C. L. 684, par. 14; Doty v. Barnard, 92 Tex. 104, 47 S. W. 712.

The record presents no error.
Affirmed.

QUINN v. DAVIS et al.*

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Appeal from the District Court of the United States for the Eastern District of Texas; William I. Grubb, Judge.

Suit by Rozina P. Davis and husband

against B. E. Quinn. Decree for plaintiffs,

and defendant appeals. Affirmed.

Oliver J. Todd and J. Austin Barnes, both of Beaumont, Tex. (Morris & Barnes, A. D. Moore, and Charles S. Pipkin, all of Beaumont, Tex., on the brief), for appellant.

W. R. Blain, of Beaumont, Tex., and J. O. Davis, of Donna, Tex. (Blain & Jones, of Beaumont, Tex., on the brief), for appellees.

Before WALKER, BRYAN, and FOSTER, Circuit Judges.

FOSTER, Circuit Judge. Appellees brought suit in equity to cancel an oil lease of certain land owned by Mrs. Davis, on the ground that appellant, while acting as their agent for the sale of the land, had concealed material facts bearing upon its value, and had thereby induced them to execute a lease to him in the belief that the transfer was for a fair price to a third party. Appellant denied agency and relied on the transfer as in good faith to himself. A decree was entered canceling the lease and for a money judgment in favor of appellees.

The record supports the following conclusions as to the material facts:

Appellees, J. O. Davis and his wife, residing in California, were owners of certain interests in oil lands in what had been known as the Spindle Top field, near Beaumont, Tex. A further development of the field, after it was supposed to have been ex

Circuit Court of Appeals, Fifth Circuit. May 7, hausted, by the drilling of deep wells, made

1928. No. 5069.

1. Principal and agent 69(3)—Agent cannot purchase and retain land of principal, without making full disclosure of facts within his knowledge regarding value.

An agent is bound to the utmost good faith, and cannot purchase and retain land of his principal, if he does not make full disclosure of all facts and circumstances within his knowledge regarding its value.

it probable that their holdings were valuable. Davis inserted an advertisement in a Beaumont paper offering the land for sale, and appellant, Quinn, who is a real estate agent, wrote to him, requesting that the land be listed with him for sale, and an agreement to that effect was entered into; Quinn to receive 5 per cent. commission. The most valuable parcel of the land consisted of about 12 acres in what was known as manufacturing block No. 12. The Yount-Lee Oil Company had acquired rights in said block and were drilling wells, in close proximity to said lot, which were expected to be proAgent, purchasing oil lease from nonresident ducing. Davis and wife were in California, principal without disclosing fact that producing and were not advised as to the local de*Rehearing denied June 18, 1928.

2. Principal and agent 69 (3)-Agent, purchasing oil lease without disclosing to principal that producing well had been brought in nearby, held guilty of bad faith authorizing

cancellation.

26 F.(2d) 81

velopments. Quinn, with full knowledge, not only concealed the true facts about the development, but wrote and wired Davis misleading statements. In March, 1926, while the development by the Yount-Lee Company was going on, Quinn induced Davis to execute a lease to him at a bonus of $400 per acre. He had previously had some negotiations with the Yount-Lee Company to transfer this lease as soon as he received it. The lease was sent to the City National Bank of Beaumont, with instructions to deliver it to Quinn on payment of the bonus.

On April 11th the Yount-Lee Company brought in a producing well in close proximity to the land of appellees, which materially increased its value. Davis heard about it, and on the 21st of April wired to Quinn that all propositions were withdrawn, and that he would be in Beaumont the following Tuesday. At the same time he wired the bank to hold all the papers. April 21st was a legal holiday, and the bank did not receive the telegram. Quinn received his on the 21st, but nevertheless the next morning he went to the bank before banking hours, and before there had been an opportunity for it to receive Davis' telegram, made the payments stipulated, and took up the lease. He subsequently transferred the lease to the Yount-Lee Oil Company for a bonus of $2,000 per acre and an overriding royalty of % of all oil produced.

[1,2] It is elementary that an agent is bound to the utmost good faith, and cannot purchase and retain the land of his principal, if he does not make full disclosure of all facts and circumstances within his knowledge regarding its value. The facts just stated make out a case of extreme bad faith on the part of appellant, and support the decree entered. Affirmed.

CAPEHART v. UNITED STATES. Circuit Court of Appeals, Eighth Circuit. March 30, 1928.

No. 7666.

Criminal law 1130(4)-Writ of error to review conviction will be dismissed, where briefs are not filed in time by plaintiff in error (Rule 24).

Writ of error to review conviction for possessing liquor will be dismissed under rule 24, where no briefs had been filed by plaintiff in error nor served on defendant in error on day case was set for argument.

26 F. (2d)-6

In Error to the District Court of the United States for the Northern District of Oklahoma; Franklin E. Kennamer, Judge.

ing liquor within the limits of what formerly Lillie Capehart was convicted of possesswas the Indian Territory, and she brings error. Writ of error dismissed.

D. E. Ashmore, of Earlsboro, Okl., for plaintiff in error.

John M. Goldesberry, U. S. Atty., of Tulsa, Okl.

Before STONE, Circuit Judge, and REEVES and OTIS, District Judges.

OTIS, District Judge. Plaintiff in error on February 5, 1926, was charged in an indictment with the unlawful possession of intoxicating liquor in a place within the limits of what formerly was the Indian Territory. She was tried on that charge October 13, 1926, and, having been found guilty, on October 14, 1926, was sentenced to eight months' imprisonment and a fine of $100. Writ of error was allowed October 23, 1926. transcript of the record was certified by the clerk of the District Court December 2, 1926. The case was set for argument before this court May 16, 1927, at Kansas City, Mo.

A

No briefs having been filed by the plaintiff in error or having been served on defendant in error, defendant in error on May 16, 1927, presented its motion to dismiss the writ of error; a copy of the motion and notice that it would be presented having theretofore been duly served on plaintiff in error. The motion prayed dismissal for failure to file and serve briefs as required by rule 24. To this motion plaintiff in error filed a response, setting up therein no sufficient excuse for her failure to comply with the rule, but asking a continuance, and suggesting that, if a continuance were granted, a brief would be filed, and that in that brief she would urge that the trial court erred in that part of his charge in which he commented on the evidence in the case.

We have examined carefully the record and have considered the assignment of errors, and especially the complaint urged in the response to the motion to dismiss. There is no error in the record. The case might well be affirmed, and so disposed of. But the better disposition is to sustain the motion to dismiss the writ of error. Even if there had been error, that would still be the better disposition. None can complain of a strict and impartial enforcement of just rules governing the review of cases, and, on the other

hand, none can justify such a relaxation of question, and was not engaged in business a rule as makes it dead letter. during any of the taxable periods except the

The motion is sustained, and the writ of last. error dismissed.

WESTERN PAC. R. CORPORATION v. BOWERS, Collector of Internal

Revenue.

The Organization and Activities of the Plaintiff Prior to June 30, 1918.

On March 1, 1915, the Western Pacific Railway Company defaulted in the payment of interest on its first mortgage bonds, of

District Court, S. D. New York. December 31, which $50,000,000 in face amount were out

1927.

Internal revenue 9 (23)-Holding company financing subsidiary reorganized railroad corporation, and enforcing judgment of bondholders through transactions involving reor. ganization of entire railroad system held taxable as "carrying on business"; "doing business" (Revenue Act 1918, § 1000 [Comp. St. § 5980n]).

Corporation formed on reorganization of railroad company, which took over stock of new operating company and the partially paidup bonds of the old railroad corporation as holding company, made advancements to operating corporation, and through negotiation of substantial credits and purchase of extensive properties and incorporation of new companies undertook enforcement of judgment against associated railway company, and which by such transactions accomplished reorganization of the entire railroad system, held liable for capital stock tax under Revenue Act 1918, c. 18, § 1000, 40 Stat. 1126 (Comp. St. § 5980n), as "carrying on or doing business" during taxable period

and preceding year.

[Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Carry on Business; Doing Business.]

At Law. Action by the Western Pacific Railroad Corporation against Frank K. Bowers, Collector of United States Internal Revenue for the Second District of New York. Plaintiff's complaint dismissed.

Action to recover taxes alleged to have been unlawfully assessed and collected by defendant and paid under protest by plaintiff. Trial was had in December, 1926, pursuant to written stipulation waiving a jury. Final submission was delayed by counsel for various reasons until October 7, 1927.

Purporting to act pursuant to section 1000 of the Revenue Act of 1918, chapter 18, 40 Stat. 1057, 1126 (Comp. St. § 5980n), the collector of internal revenue assessed against the plaintiff capital stock taxes in the sums of $24,526, for the period ending June 30, 1920, $30,374.30 for the period ending June 20, 1921, and $31,202 for the period ending June 30, 1922. Having paid these taxes under protest, plaintiff seeks recovery thereof upon the ground that it was not engaged in business during the years preceding any one of the taxable periods in

standing and were secured by mortgage upon its lines of railway from San Francisco to Salt Lake City. The Equitable Trust Company of New York was the trustee under this mortgage. These bonds were not only secured by the mortgage, but were in effect guaranteed as to the payment of principal and interest by the Denver & Rio Grande Railroad Company. Equitable Trust Co. v. Denver & R. G. R. Co. (C. C. A.) 250 F. 327. The trustee filed its bill to foreclose in the United States District Court for the Northern District of California, and thereafter, on June 28, 1916, all the property and assets of the old Western Pacific Railway Company were sold under foreclosure decree for the sum of $18,000,000, and were purchased by representatives of a reorganization committee with which $47,451,500 in face amount of the first mortgage bonds had been deposited subject to the provisions of a plan and agreement of reorganization. This plan contemplated the formation of an operating company having the right of eminent domain and the formation of a corporation which should own the stock of the operating company and the claims of the bondholders participating in the reorganization against the Denver Company. It was thought necessary by the committee that the operating company should be organized under California law, so that no doubt could arise regarding its right of eminent domain. The corporation which was to hold its stock and the bondholders' claims against the Denver Company was considered necessary by the committee because under the California statutes stockholders are subject to personal liability for corporate debts, and the only effective way to enforce the claims of the bondholders against the Denver Company was through the instrumentality of a single corporation which should have full power to act with respect to all the claims. These claims in the aggregate were so large that, assuming their validity, which was contested, their collection would necessarily present difficult problems, seriously complicated by the fact that the property of the Denver Company was itself threatened by foreclosure

26 F.(2d) 82

of liens prior to the claims arising upon the agreement of guaranty, and requiring the exercise of business judgment and the ne gotiation and execution of financial plans and agreements in their solution.

Pursuant to this plan, the plaintiff corporation was organized under the laws of Delaware on June 29, 1916. The nature of its business and the objects and purposes proposed to be transacted, promoted, and carried on by it are defined in its certificate of incorporation as follows:

"To purchase, subscribe for, or otherwise acquire and own, hold, use, sell, assign, transfer, mortgage, pledge, exchange, or otherwise dispose of real and personal property of every kind and description, including shares of stock, bonds, debentures, notes, evidences of indebtedness and other securities, contracts, or obligations of any corporation or corporations, association or associations, domestic or foreign, and to pay therefor, in whole or in part, in cash or by exchanging therefor stocks, bonds, or other evidences of indebtedness or securities of this or any other corporation, and while the owner or holder of any such real or personal property, stocks, bonds, debentures, notes, evidences of indebtedness, or other securities, contracts, or obligations, to receive, collect, and dispose of the interest, dividends, and income arising from such property and to possess and exercise in respect thereof all the rights, powers, and privileges of ownership, including all voting powers on any stocks so owned."

"To aid, either by loans or by guaranty of securities or in any other manner, any corporation, domestic or foreign, any shares of stock or any bonds, debentures, evidences of indebtedness, or other securities whereof are held by this corporation or in which it shall have any interest and to do any acts designed to protect, preserve, improve, or enhance the value of any property at any time held or controlled by this corporation or in which it at that time may be interested."

"To enter into, make, perform, and carry out contracts of any kind for any lawful purpose with any persons, firms, associations, or corporations."

"To purchase, acquire, lease, own, and enjoy any and all such other property, real and personal, as may be reasonably necessary for the carrying on of the business of the corporation."

As originally drawn, the certificate of incorporation authorized the directors to enforce, and, with the approval of two-thirds of the stockholders, to compromise or settle, claims which it might acquire arising out of

the agreement of the Denver & Rio Grande Railroad Company, by which it guaranteed payment of the old Western Pacific bonds, but required that the proceeds of these claims should either be distributed to its stockholders, or, if not distributed, paid over to the operating company upon such lawful consideration, or without consideration, as agreed. This provision was amended on November 29, 1920, so as to permit, as an additional alternative, the retention of the proceeds of such claims as corporate assets, but only upon issuing to the stockholders in proportion to their holdings paid-up stock to the amount of the fair value of the assets so retained.

The authorized capital of the plaintiff company was $75,000,000, consisting of $47,500,000 par value of common stock and $27,500,000 par value of 6 per cent. preferred stock. The operating company was organized with the same capital. The properties purchased on foreclosure were transferred to the operating company in exchange for its entire capital stock of $75,000,000, and this stock was transferred and assigned to the plaintiff corporation in exchange for $74,996,400 par value of its capital stock, which was distributed among the former owners of the first mortgage bonds of the old Western Pacific, who had deposited their bonds with the reorganization committee, and to underwriters of a new issue of $20,000,000 face amount of first mortgage bonds of the operat ing company. The reorganization committee also transferred and assigned to the plaintiff corporation the $47,451,500 face amount of the partially paid first mortgage bonds of the old Western Pacific, together with all the rights inhering in said bonds to recover from the Denver Company the balance remaining unpaid thereon after crediting the amount realized upon the foreclosure sale.

In 1916 the trustee instituted an action in this court against the Denver Company to recover damages suffered by the bondholders of the old Western Pacific by reason of the Denver Company's breach of its contract of guaranty. The trustee recovered judgment in that suit for the sum of $38,270,343.17, which judgment was affirmed by the United States Circuit Court of Appeals for the Second Circuit on January 3, 1918 (250 F. 327). On April 15, 1918, the Supreme Court of the United States (246 U. S. 672, 38 S. Ct. 423, 62 L. Ed. 932) denied the Denver Company's petition for a writ of certiorari to review this judgment. In October, 1917, the trustee received $3,003,562.52 in partial satisfaction of this judgment by means of an ex

ecution sale of certain Liberty bonds owned by the Denver Company. Prior to July 1, 1918, judgments on said judgment were obtained by the trustee against the Denver Company in various other courts, including the Supreme Court of New York, the Supreme Court of the state of Illinois, and the United States District Court for the District of Colorado. In January, 1918, the Denver Company was thrown into receivership by suit brought by one of its creditors in the United States District Court for the District of Colorado. The trustee intervened in said suit and proved its judgments as a claim against the Denver Company.

purchased $61,000 face amount of the first consolidated mortgage bonds of the Rio Grande Western Railway Company.

During this period plaintiff received one dividend of 1 per cent. on the preferred stock of the operating company, amounting to $275,000. It also received interest from bank balances and securities owned by it; interest received from all sources during the period amounting to $58,078.44. It also received from the trustee distributions amounting to $5,056,750 out of the moneys collected from the Denver Company with respect to the first mortgage bonds of the old Western Pacific. It paid three dividends of 12 per cent., and one dividend of 1 per cent., on

The Activities of the Plaintiff from July 1, its preferred stock. No dividends were paid

1918, to June 30, 1919.

During this period, which is the year preceding the first taxable period involved, the company maintained no office except its statutory office in Delaware. Meetings of its directors and executive committee were held in the office of the Equitable Trust Company, in New York City. Stock books were kept for the transfer of the plaintiff's capital stock; corporate accounting books and records were kept; taxes were paid; and such action was taken as was required to maintain the corporate existence and organization of the plaintiff corporation. Only one of the plaintiff's officers, its secretary and treasurer, received a regular salary. The plaintiff owned and voted by proxy all of the capital stock of the operating company and all of the capital stock of Western Railway Securities Company, a corporation which was organized in 1917 under the laws of the state of Illinois in order to facilitate the giving of attachment bonds by the trustee in suits instituted by it against the Denver Company in the courts of Illinois. In 1917 the plaintiff had borrowed $275,000 from the Equitable Trust Company of New York, with which it had subscribed and paid for $275,000 par value of the capital stock of this Securities Company. In October, 1918, the Securities Company was dissolved, and its assets, including $250,000 of Liberty bonds, were transferred to the plaintiff as its sole stockholder. The loan from the Equitable Trust Company was repaid, with interest, in November, 1918, and January, 1919. On September 3, 1918, the plaintiff sold $215,500 face amount of United States Liberty Loan bonds, and on October 24, 1918, purchased $1,000,000 face amount of United States Liberty Loan bonds, $250,000 face amount of which were sold on November 4, 1918. On September 4, 1918, the plaintiff

on plaintiff's common stock.

The Denver Company was for many years prior to and up until June 20, 1918, the owner of all of the capital stock ($10,000,000 par value) of Utah Fuel Company, a corporation of the state of New Jersey, which owned and operated coal mines in the state of Utah, subject to the pledge thereof under the first consolidated mortgage of the Rio Grande Western Railway Company. The equity and interest of the Denver Company in this stock was sold on June 20, 1918, on execution in partial satisfaction of the judgment theretofore secured by the trustee against the Denver Company in the Supreme Court of New York. This fuel company stock had no market value. To protect its interest, an agreement was made by the plaintiff with a firm of bankers, by which it was agreed that the bankers should bid for the stock, and, if successful in acquiring it, hold it for the account of the plaintiff; the plaintiff agreeing to furnish the necessary funds and to indemnify the bankers against loss. The bankers acquired the stock for the sum of $4,000,000, and borrowed that amount, pledging the stock as security for the loan. Thereafter, on October 28, 1918, the plaintiff paid off the loan with interest, and on February 14, 1919, the bankers transferred and assigned to the plaintiff all their interest in the stock. The plaintiff then demanded of the trustee of the mortgage under which the stock was held as security, and in whose name the stock stood of record, proxies to vote the stock and dividend orders entitling plaintiff to receive such dividends as might be declared thereon. Claims were thereupon made by other parties denying plaintiff's interest in this stock, and the trustee refused to recognize the plaintiff's rights as owner, whereupon plaintiff instituted action in this court to establish and enforce its rights with respect to the stock of the Utah

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