24 F.(2d) 784 Hirsh, Newman & Reass, of New York City (Benj. Reass, Hugo Hirsh, Emanuel Newman, and Leonard F. Manheim, all of New York City, of counsel), for defendants in error. Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges. SWAN, Circuit Judge (after stating the facts as above). [1] The most important question, and the one which disposes of the case in the view we take of it, is whether the policy covered this loss. This involves the construction of its language. The policy is entitled "All-Risks Jewelers' Block Policy." Its provisions, so far as now material, are the following: "The property insured is stones precious while the same are (save as hereinafter provided) in or upon any premises or place whatsoever, or being carried or in transit by land or water anywhere in Holland, Belgium, and the United States of America. "Sendings of property insured under this policy, in so far as the same are not personally carried, must be forwarded by registered post. "Provided always that where, owing to postal regulations or laws of the country from which the property is being forwarded, such goods are prohibited from being dispatched by registered post, the same may be forwarded by parcel post or through a public forwarding office, providing that a declaration is made at the time of dispatch of 5 per cent. of the value of the goods, not exceeding a declaration of francs 10,000." The first paragraph above quoted declares that the risk shall cover property of the specified description in any premises or place, or being carried or in transit, anywhere within the geographical limits stated. It thus distinguishes between goods "in any premises or place" and those "being carried or in transit." The paragraph beginning "Sendings" clearly refers back to the prior statement with respect to property being carried or in transit, and limits the generality of that statement. "Sendings of the property insured," if it is not personally carried, "must be forwarded by registered post." If we stop with these two paragraphs, and omit the proviso, it seems to us perfectly clear that the policy contemplates that insured property, while being carried or in transit, must be personally carried, or must be forwarded by registered mail. The property is of a character best adapted to these types of transportation, being small in 24 F. (2d)-50 In the construc size, light in weight, and of great value. Personal carriage, which in practice means carrying by the insured's employees, or sending by registered post, may well have been supposed to involve less risk of loss. In any event, up to this point the language of the policy limits the risk of property being carried or in transit to sendings by messenger or registered post. [2, 3] The language of the proviso, about which most of the argument has revolved, creates some doubt as to its applicability to any transportation, except one originating in Belgium, the only one of the named countries where a declaration of value in terms of francs would be possible. It is also argued that the words "the country from which the property is being forwarded" limit the proviso to international shipments. But, even if the proviso be assumed to be so limited, the "sendings" clause ought not to be correspondingly limited. tion of statutes, a proviso does not operate beyond the express exceptions which it carves out of the general enactment. United States v. Dickson, 15 Pet. 141, 10 L. Ed. 689. We think this general rule of interpretation is equally applicable to other written documents, and that the proviso in question cannot be resorted to for the purpose of making doubtful the otherwise unambiguous clause to which it is appended to provide an exception. The general statement of risk covers property being carried or in transit within any one of the three countries. The "sendings" paragraph limits the risk while it is being carried or in transit to personal carriage and forwarding by registered mail, two methods thought to be of exceptional security. The limitation is as important in carriage or transit within the boundaries of each of the three countries as across the boundary of Belgium. The proviso allows as an exception to the general limitation an alternative method of forwarding upon the conditions stated therein. If the conditions cannot be complied with, or if the proviso is limited to international shipments, then that alternative is not open to the insured in sendings within the United States. But to say that, because the alternative offered by the proviso is not applicable here, the limitation of the main clause is entirely done away with, would be most unreasonable. [4] It remains to consider whether the diamonds were being "personally carried" at the time of the loss. This means carried by the insured, or some servant or agent in his employ. It is clear from the proviso that property delivered to a public forwarding office is not deemed to be personally carried. ant's motion to dismiss the complaint, and The insured's argument that the Parmelee the judgment must be reversed. It is so ordriver was personally carrying the diamonds, dered. within the meaning of the policy, is too fantastic to require more than mention. See Hoffman Bros. v. Commercial Union Assurance Co., 221 App. Div. 167, 222 N. Y. S. 641; Lynch v. Am. Eagle Fire Ins. Co., 220 App. Div. 196, 221 N. Y. S. 4. [5] A second and more substantial argument is that, since personal carriage by Strauss was covered, no matter what his negligence, or even if he stole the goods, his neglect to carry personally, or to send them by registered post, was part of the insured risk. To this, however, we cannot accede. When an insurer imposes conditions on his risk, he excepts all others. It is no answer to say that the assured is not personally to blame for nonperformance of the conditions by his agent. Liverpool & London Ins. Co. v. Gunther, 116 U. S. 113, 128, 129, 6 S. Ct. 306, 29 L. Ed. 575; Id., 134 U. S. 110, 10 S. Ct. 448, 33 L. Ed. 857. See, also, Whealton Packing Co. v. Etna Ins. Co., 185 F. 108, 34 L. R. A. (N. S.) 563 (C. C. A. 4); Shamrock Towing Co. v. Am. Ins. Co., 9 F. (2d) 57 (C. C. A. 2). In the Gunther Case the kerosene which caused the fire was brought upon the premises by a tenant without authority of the insured, but it was held none the less a breach of condition which prevented recovery. A servant is more nearly identified with his principal in such a case than is a tenant. Strauss was the servant of the insured, with complete control over their diamonds. His default, if he was instructed to carry them on his person, was still chargeable to his principals; it was within the scope of his authority. The insurer refused to insure any carriage or transit, except personal or by registered post (the proviso not applying), and cannot be held for risks not included in his contract. [6] Finally it is urged that the sendings clause has no application to a forwarding from one point to another in the same city. We see no reason why it should be so narrowed. The policy covered the risk of personal carriage or registered mail. riage by a common carrier was substituted, the risk was different. Whether it was greater or less does not matter; it was different. And this is true, whether the carriage is for a long or short haul. If car We were informed that this is a new form of policy, of which there has been no previous judicial construction. Construing it as we do, it was error to overrule the defend UNITED STATES v. SMAIL et al. Ex parte O'LEARY et al. Circuit Court of Appeals, Second Circuit. March 12, 1928. No. 196. 1. Intoxicating liquors 275-Information on which reasonable person would act is necessary for lessee's lease to be forfeited because of sublessee's liquor nuisance (National Prohibition Act, tit. 2, § 23 [27 USCA § 37]). For lease to be forfeited under National Prohibition Act, tit. 2, § 23 (27 USCA § 37), because of the sublessee maintaining a liquor nuisance thereon, while it is not enough to show sublessee's guilt, it is not necessary that lessee should have had full knowledge thereof; but, if the information which lessee had was such that estly disposed to prevent the unlawful use of the a reasonable person would act on it, if honproperty, he was bound to follow it up, and, if he learned that his suspicions were justified, to take affirmative action, and; failing to do this, participation, and cancellation of the lease his inaction may be treated as connivance or granted on application of the lessor in the government's suit to enjoin the nuisance. 2. Intoxicating liquors 275-Lease may not be forfeited for sublessee's maintaining liquor nuisance, without evidence fastening on lessee some notice; likelihood that he knew not being enough (National Prohibition Act, tit. 2, § 23 [27 USCA § 37]). Evidence is insufficient to warrant forfeiture of lessee's lease under National Prohibition Act, tit. 2, § 23 (27 USCA § 37), because of subevidence does not fasten on lessee some actual lessee's maintaining a liquor nuisance, where notice calling for action, but merely raises some likelihood that he knew what was going on. Appeal from the District Court of the United States for the Southern District of New York. Suit by the United States against Abbas Smail and others for abatement of liquor nuisance. From a decree canceling lease on cross-bill of defendants Margaret and Penelope O'Leary, defendants N. & M. Realty Corporation, Nathan Shapanka, and Minnie Stern appeal. Reversed, and cross-bill dis missed. On June 24, 1927, the United States filed a bill in equity against Smail and Mosjian, the N. & M. Realty Corporation, the O'Learys, and Shapanka and Stern, alleging that the second floor of certain premises, Nos. 357-359 West Thirty-Eighth street, in New York City, was being used for the sale of liquor in violation of the National Prohibition Act (27 USCA) and that it had be 24 F.(2d) 786 come a public nuisance. The bill asked for an abatement of the nuisance and the closing of the premises for a year. Smail and Mosjian, the sublessees of the Realty Corporation, defaulted, but the O'Learys answered and filed a cross-bill against the N. & M. Realty Corporation, praying the cancellation of a lease from them to the corporation, because of its privity with the offense. The realty corporation answered the cross-bill, and filed a cross-bill against Smail and Mosjian for forfeiture of the sublease. Shapanka and Stern were the sole stockholders in the realty corporation. The case was heard on the bill and cross-bills and at the conclusion of the evidence the judge found that the premises complained of had become a nuisance and that the realty corporation either knew or should have known that it was. A decree was entered requiring a bond of the O'Learys against future violations, enjoining the sublessees, and, on the O'Learys' cross-bill, canceling the lease of the realty corporation. The cross-bill of the realty corporation does not appear to have been disposed of. The realty corpora tion, Shapanka, and Stern appeal from the decree upon the O'Learys' cross-bill. The evidence showed without dispute that on October 27, 1922, the O'Learys let to the realty corporation five houses on West Thirty-Eighth street and Ninth avenue in New York for a term of 19 years. The house on the northeast corner of these streets was known both as 359 West Thirty-Eighth street and 502 Ninth avenue. Nos. 355 and 357 West Thirty-Eighth street were houses on the north side of Thirty-Eighth street, east of the corner; Nos. 504 and 506 Ninth avenue, those on the east side of Ninth avenue north of it. On February 25, 1927, the realty corporation let the second floor of the corner house to Smail, Mosjian, and one Ismail for a term of three years as a restaurant. The sublessees entered and occupied the premises as such, and the evidence showed that they surreptitiously sold liquor there to whoever came in as a guest. The theory of the O'Learys was that, from the freedom with which this was done, and from other evidence, Shapanka and Stern, and their agent, Kinkel, had learned of what Smail and his fellows were doing, and that they condoned in and connived at their of fense. They asserted that thereby the whole lease was forfeitable under title 2, section 23 of the National Prohibition Law (27 USCA § 37). H. & J. J. Lesser, of New York City (Emory R. Buckner, John M. Harlan, and S. S. Isseks, all of New York City, of counsel), for appellant Realty Corporation. William Harvey Smith, of New York City (John de Raismes Storey and William Harvey Smith, both of New York City, of counsel), for appellees O'Leary. Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges. L. HAND, Circuit Judge (after stating the facts as above). In U. S. v. Gaffney (C. C. A.) 10 F. (2d) 694, where the complicity of the lessee with a sublessee was well esfeit the lease and re-enter under a decree uptablished, we held that the lessor might for on such a cross-bill as that at bar. U. S. v. Duignan, 4 F. (2d) 983 (C. C. A. 2), affirmed 274 U. S. 195, 47 S. Ct. 566, 71 L. Ed. 996, went off on points of practice and cannot be treated as an authority. Grossman v. U. S., 280 F. 683 (C. C. A. 7), involved the cancellation of the lease of a guilty lessee, and Schlieder v. U. S., 11 F. (2d) 345 (C. C. A. 5), and U. S. v. Pepe, of the premises against the landlord. While 12 F. (2d) 985 (C. C. A. 2), only the closing the authority is meagre, we think that there may be situations in which a lease should be forfeited under section 23 because of the misconduct of a sublessee. This was assumed under a similar statute in Massachusetts (Healy v. Trant, 15 Gray, 312, O'Connell v. McGrath, 14 Allen, 289), and under a somewhat similar one in Oklahoma (Street v. Tull, 38 Okl. 689, 134 P. 871). [1] The question is therefore under what circumstances the sublessee's fault should be imputed to the lessee. That it is not enough merely to show that the sublessee was guilty of a violation nobody asserts, and no case holds; the State decisions just cited are to the contrary. Moreover, it must be remembered that it is always possible for the lessor to tell the lessee of any information he may acquire of the sublessee's offenses, and thus to put the initiative upon him. If he fails to do so, and, as here, seeks merely to gather information for the purpose of forfeiting the lease, there is good reason to assume that his interest is rather in retaking his property than in protecting it from violations of the law. We recognize, however, that there may be information short of full knowledge which will suffice. Here, as elsewhere, a man charged with the duty to act may not close his eyes to circumstances which would lead an ordinary person to ascertain the facts more fully. We know of no other rule than that commonly applied in such situations; if the information is such that a reasonable person would act upon it, if honestly disposed to prevent the unlawful use of his property, he is bound to follow it up, and, if he learns that his suspicions are justified, to take affirmative action. If he fails, the lessor may treat his inaction as connivance or participation, and apply to cancel the lease in such a suit as this. We think all this involved in our decision in U. S. v. Gaffney, 10 F. (2d) 694. In the case at bar there was no direct evidence of the lessee's knowledge; usually that is difficult to get. Liquor was indeed served freely in Smail's restaurant; but this was not done openly, although at times there were drunken people on the premises. However, the neighborhood was a poor one, and less seemliness was to be expected in a restaurant conducted there than in other parts of the town. It was noisy and offensive to some of the other tenants. A dentist found, or thought he found, that this affected his practice. One of the other tenants said that some of the rooms in No. 504 Ninth avenue were used for assignation; but she was plainly hostile to the lessee, having been dispossessed, and she had left before Smail got his lease. Two detectives employed by his suspicions directly, and impose upon him a duty to act. Mere indifference to proposed violations of law does not prove knowledge, nor does notice of independent and existing wrongdoing. At most it shows a disposition not to act, and the inference from that seems to us too tenuous to bear so momentous a conclusion. We cannot find that Kinkel or Shapanka, on their visits to the restaurant, must have known or should have surmised that liquor was being dispensed. Were it not that the District Judge had found otherwise, we should have been in small doubt. His conclusion has indeed given us pause, but he avoided finding that the lessee knew of the violation, and his finding that it ought to have known involves a conclusion as to its duty under the circumstances, a question we may review. We do not think the evidence plain enough to impose such a duty. Decree of forfeiture upon the cross-bill reversed; cross-bill dismissed. of Internal Revenue. Circuit Court of Appeals, Second Circuit. No. 208. Internal revenue 27(1)-Corporation voluntarily paying additional tax pursuant to amended return held liable for interest on such amount (Revenue Act 1921, § 250[b]; Comp. St. § 6336tt). the lessors asked for leases in one of the UNION PAC. R. Co. v. BOWERS, Collector buildings to be used for restaurants, and told the lessee that they meant to sell liquor. They were answered evasively, and were not refused outright, though they got no leases before the authorities closed up the place. A door had been cut through from No. 502 to No. 504 on the second floor, which the lessors argued led to assignation rooms; but the proof of this was very weak. The lessee's agent was often on the premises, and so was Shapanka, and perhaps Stern, though she denied it. On the other hand, the lessee proved by several tenants that they had seen nothing untoward on the premises, and Shapanka and Stern and their agent naturally disclaimed any knowledge of Smail's practices. [2] Upon this, as upon other cases of forfeiture, a court of equity does not look with a friendly eye. The penalty is severe, and the obligation upon the lessee heavy; it seems to us that more should be shown before a lease involving so much property is destroyed. That there is some likelihood that Shapanka and Stern, or their agent, did in fact know what was going on, we cannot deny; but a lessor must go further than that, else nobody's estate will be safe. He must, fasten upon the lessee some actual notice calling for action, especially since, as we have said, it is always within his power to tell him Under Revenue Act 1921, § 250(b), being Comp. St. § 6336%tt, corporation voluntarily paying additional tax pursuant to amended return held liable for interest on additional tax, though amended return was filed and additional payment made before examination and audit of returns by Commissioner. Swan, Circuit Judge, dissenting. In Error to the District Court of the United States for the Southern District of New York. Action by the Union Pacific Railroad Company against Frank K. Bowers, Collector of Internal Revenue, to recover interest alleged to have been unlawfully assessed against it on its income tax return for the year 1922, amounting to $44,475.32, and to have been paid by it under protest and duress. Judgment for defendant, dismissing complaint for failure to state facts constituting a cause of action (21 F.[2d] 856), and plaintiff brings error. Affirmed. 24 F.(2d) 788 The plaintiff, Union Pacific Railroad shown in the return, the installments shall Company, filed a federal income tax return be recomputed. If the amount already paid for the calendar year 1922 and paid the tax exceeds that which should have been paid on shown to be due on the face of the return. the basis of the installments as recomputed, Thereafter, on May 13, 1925, the railroad the excess so paid shall be credited against filed with the collector an amended return the subsequent installments; and if the for the same year, which showed a tax lia- amount already paid exceeds the correct bility of $413,724, in addition to that shown amount of the tax, the excess shall be creditin the original return. The amended return ed or refunded to the taxpayer in accordance was filed voluntarily, and its sole effect was with the provisions of section 252. to eliminate a certain deduction claimed in the original return, and in consequence to increase the tax liability of the railroad for the year 1922 by $413,724. Thereupon the railroad paid to the collector the additional tax, but paid no interest thereon. Thereafter the collector notified the railroad that an assessment had been made against it of interest upon the additional tax in the sum of $44,475.32, and served a demand for the payment of the said interest, which was accordingly paid under protest and duress to the collector. The payment of the additional tax of $413,724 was made voluntarily, and no assessment thereof (except interest thereon) was ever made. Contemporaneously with the payment of interest, plaintiff filed a claim with the Commissioner for a refund, which was rejected by him on the following ground: "In accordance with section 250 (b) interest is collectible on any deficiency in tax on returns filed under the provisions of the Revenue Act of 1921, whether or not such deficiency is discovered by the taxpayer and amended return voluntarily filed and the tax voluntarily paid or as a result of the examination of the returns by this office." At the time of payment of the additional tax the Commissioner had made no examination of either the original return or the amended return. No part of the interest so paid under duress was refunded, and the railroad brought this action accordingly, on the ground that the assessment and collection of the interest were unauthorized by law. Judge Goddard held that the interest was properly assessed against the railroad, and dismissed its complaint to recover it accordingly. The question whether interest should have been assessed in this case depends upon the proper interpretation of section 250 (b) of the Revenue Act of 1921 (Comp. St. § 6336% tt). The pertinent provisions of that section are the following: "(b) As soon as practicable after the return is filed, the Commissioner shall examine it. If it then appears that the correct amount of the tax is greater or less than that "If the amount already paid is less than that which should have been paid, the difference, to the extent not covered by any credits due to the taxpayer under section 252 (hereinafter called 'deficiency'), together with interest thereon at the rate of one-half of 1 per centum per month from the time the tax was due (or, if paid on the installment basis, on the deficiency of each installment from the time the installment was due), shall be paid upon notice and demand by the collector. If any part of the deficiency is due to negligence or intentional disregard of authorized rules and regulations with knowledge thereof, but without intent to defraud, there shall be added as part of the tax 5 per centum of the total amount of the deficiency in the tax, and interest in such a case shall be collected at the rate of 1 per centum per month on the amount of such deficiency in the tax from the time it was due (or, if paid on the installment basis, on the amount of the deficiency in each installment from the time the installment was due), which penalty and interest shall become due and payable upon notice and demand by the collector. If any part of the deficiency is due to fraud with intent to evade tax, then, in lieu of the penalty provided by section 3176 of the Revised Statutes, as amended, for false or fraudulent returns wilfully made, but in addition to other penalties provided by law for false or fraudulent returns, there shall be added as part of the tax 50 per centum of the total amount of the deficiency in the tax. In such case the whole amount of the tax unpaid, including the penalty so added, shall become due and payable upon notice and demand by the collector." Clark, Carr & Ellis, of New York City (Henry W. Clark, of New York City, of counsel), for plaintiff in error. Charles H. Tuttle, U. S. Atty., of New York City (Samuel C. Coleman, Asst. U. S. Atty., of New York City, of counsel), for defendant in error. Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges. |