Bowers v. New York Trust Co.

• Decision Date: 16 November 1925
• Docket Number: No. 63.,63.
• Citation: 9 F.2d 548
• Parties: BOWERS, Collector of Internal Revenue, v. NEW YORK TRUST CO. et al.
• Court: U.S. Court of Appeals — Second Circuit

9 F.2d 548 (1925)

BOWERS, Collector of Internal Revenue, v. NEW YORK TRUST CO. et al.

No. 63.

Circuit Court of Appeals, Second Circuit.

November 16, 1925.

Emory R. Buckner, U. S. Atty., of New York City (Thomas J. Crawford and Nathan R. Margold, Asst. U. S. Attys., both of New York City, of counsel), for plaintiff in error.

Hughes, Rounds, Schurman & Dwight, of New York City (Charles E. Hughes, Arthur C. Rounds, George W. Schurman and Oscar R. Ewing, all of New York City, of counsel), for defendants in error.

Before HOUGH, MANTON, and HAND, Circuit Judges.

HAND, Circuit Judge (after stating the facts as above).

Taken formally there seems to us no doubt that the payments made after May 1, 1917, were not firm income. We reserve for the moment the question whether we must go behind the form. Cannon had by the original articles the right to demand of the firm 60 per cent. gross of the commissions coming from the "Cannon Group." This he surrendered, and got in its stead nothing but the firm's promise not to collect any payments under its contracts with the 3 named mills. We do not forget that he was also given freedom to deal with the mills as he chose, but the permission was of no moment, since the firm could neither bestow nor withhold it. This contract did indeed leave the firm's contracts with the mills untouched; as between itself and the mills, the firm was still bound to act as commission agent, and entitled to collect its commissions. There was no release, no novation, no accord.

This, however, makes no difference in the result, because the firm had agreed with Cannon not to collect under its contracts with the mills and could not lawfully do so. It is difficult to see how Cannon had any remedy at law upon a breach of his contract with the firm. The mills' payments were not from his pocket and involved him in no loss. If so, he could have enforced the promise specifically by injunction. The most that can be said to the contrary is that the firm's collection of its commissions might in fact have prevented Cannon from making any contracts with the mills, and that this would be a proximate damage for which he might sue. The point is extremely doubtful, and we think that Cannon had in fact power to prevent the collection. A legal remedy must be not only adequate, but clear.

However, we find it unnecessary to decide that question. Even if he had not the power, it would have been a wrong had the firm collected the payments. We are concerned only with whether the payments actually made were paid under the firm's contracts, and there is no doubt that they were not. There is no suggestion that the firm violated its contract with Cannon, and no reason to assume that it did. On the contrary, the payments proved that it had not. While these were made by checks to the firm's order, the accompanying letters directed the distribution of the proceeds, and became conditions upon the firm's title if they cashed the checks. The money in its hands was in equity the property of the distributees, who could have held the firm accountable for its diversion. Whether or not the whole transaction was no more than a device through which the law will look, it was loyally carried out by all sides, and the payments were clearly not made under those contracts between the firm and the mills, which the firm had bound itself not to enforce. So we should hold, and in any case the question is not open after verdict.

Therefore, it makes not the slightest difference whether Cannon's contracts with the mills were authorized, or whether they had a valid consideration; the firm being already bound under its contracts with the mills to perform the duties of a commission agent. The payments may have been purely voluntary, and the result would be the same; they were not firm income, and could not lawfully be such, unless Cannon chose to release the firm. They are relevant at all, only as characterizing the payments and furnishing added proof, if any be needed, that the payments were not made under the firm's contracts. Therefore we do not find it important to consider some of the questions mooted in the argument. Taken formally, we have no doubt that the payments were not firm income.

A more difficult question is whether the whole arrangement was not a device to distribute firm profits to Cannon as partner by an elimination of the firm. Is the case like those in which the courts have held that guaranteed dividends paid direct to shareholders of a lessor company are payments to the company? Rensselaer & S. R. Co. v. Irwin, 249 F. 726, 161 C. C. A. 636; Blalock v. Georgia R. & E. Co., 246 F. 387, 158 C. C. A. 451; West End St. R. Co. v. Malley, 246 F. 625, 158 C. C. A. 581; Houston, etc., Co. v. U. S., 250 F. 1, 162 C. C. A. 278. Those cases regard a...