action, or proceeding to annul, modify, or set aside such determination or assessment shall be entertained by any court of the United States." The agreement is as follows: "This agreement, made this 6th day of October, 1923, under and in pursuance of section 1312 of the Revenue Act of 1921, by and between J. W. Carter Music Company, a taxpayer having its principal place of business at Houston, Texas (hereinafter referred to as the taxpayer), and the Commissioner of Internal Revenue (hereinafter referred to as the Commissioner) with the approval of the Secretary of the Treasury: "Whereas, between the 24th day of July, 1918, and the 24th day of February, 1923, there was assessed against the taxpayer the sum of twenty-seven thousand nine hundred sixty-four dollars and eighty-six cents ($27,964.86) as the amount of taxes due the United States of America from the taxpayer on account of corporation income and profits tax for 1917 to 1920, inclusive; and "Whereas, the taxpayer pursuant to such assessment between the twenty-fourth day of July, 1918, and the twenty-fourth day of February, 1923, paid the sum of twenty-seven thousand nine hundred sixty-four dollars and eighty-six cents ($27,964.86) as taxes due the United States of America on account of said corporation income and profits tax for 1917 to 1920, inclusive; and "Whereas, there has been a determination by the Commissioner that the sum of twenty thousand three hundred twenty-three dollars and ten cents ($20,323.10) is the correct amount for which the taxpayer was liable on account of said corporation income and profits tax for 1917 to 1920, inclusive; and "Whereas, the Commissioner has made a credit based on such determination and such assessment of the sum of seven thousand six hundred forty-one dollars and seventy-six cents ($7,641.76) against taxes due from the taxpayer on account of corporation income and profits taxes for 1917 to 1920, inclusive, and the taxpayer has accepted such credit: "Now this agreement witnesseth that the taxpayer and the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, hereby mutually agree that such determination of the sum of twenty thousand three hundred and twenty-three dollars and ten cents ($20,323.10) as the correct amount of taxes for which the taxpayer was liable on account of said corporation income and profits tax for 1917 to 1920, incorporated, and such assessment as reduced by the amount credited as aforesaid shall be final and conclusive. "In testimony whereof the parties to these presents have hereunto set their hands and seals the day and year first above written. J. W. Carter Music Company, Taxpayer, by J. W. Carter, President. D. H. Blair, Commissioner. Signed, sealed and delivered in the presence of G. W. Garvin. Approved Oct. 8, 1923. A. W. Mellon, Secretary." The facts under which this payment was made and the agreement executed are that an audit of plaintiff's returns, made in 1921 at a time when plaintiff had paid one installment of the taxes, showed plaintiff to be due $7,955.97. After plaintiff had paid the remaining installments of the 1921 tax shown in his own return to be due, to wit, $4,950.34, some one in the central office at Washington in 1922 made a positive misrepresentation of facts that "an audit of plaintiff's income tax for 1920 in connection with the report of the internal revenue agent detailed upon that case disclosed that plaintiff was due an additional tax for 1920 of $7,955.97," and this misrepresentation was sent to the collector, the defendant, and by him transmitted to plaintiff as the basis for the unjust demand, which plaintiff, on December 6, 1922, complied with by paying the defendant $4,950.34 more than was due by it. As a matter of fact, when this misrepresentation was made, an audit of plaintiff's income tax, in connection with the report referred to, showed plaintiff to be due only $3,005.63, instead of $7,955.97, since plaintiff had, after the making of the agent's report in April, 1921, paid to the United States $4,950.34 of the $7,955.97 which in April, 1921, it had owed, and was only due $3,005.63. Plaintiff meets the defense of the agreement with two propositions: (1) That there was no assessment and determination of taxes for the year 1920 made and agreed to as contemplated in the statute. (2) That, if there was such an assessment and agreement made as contemplated by the statute, it cannot constitute a defense to this cause, because, if in fact made, the payment by plaintiff and the agreement following were all induced by a misrepresentation of fact, which under the very terms of the statute deprives them of any effect. [2] Examining these contentions, I think they both must be sustained. As to the first, it is evident that the statute contemplates, not a lumping statement of account for a series of years, as this agreement purports to be, but a precise assessment of taxes for a particular year, made primarily by the taxpayer's re 20 F.(2d) 390 turn, and secondarily by the collector, upon the basis of that return. Here we have no assessment, but merely an account stated, as the basis for the unjust exaction from plaintiff and the subsequent agreement seeking to sanctify and consecrate that exaction. tion, or contracted during infancy, or to the extent of principal and legal interest upon a usurious contract, or for money lost at play, because in all these cases the defendant may defend with a safe conscience, though by positive law he is barred from recovery. In other words, the gist of this kind of action is that the defendant, under the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money." In 2 R. C. L. p. 778, the editor, discussing action on money counts, says: "Indebitatus assumpsit, in the form of the count for money had and received, became available in all cases where the law would raise a duty to pay money. Though an action at law, it is equitable in its nature, and is said to resemble a bill in equity, and to lie whenever a bill in equity would lie. • It is maintainable in all cases where one person has received money or its equivalent under such circumstances that in equity and good conscience he ought not to retain it, and ex æquo et bono it belongs to another. • Any facts, circumstances or dealings from which it appears that defendant has in his hands money of the plaintiff which he ought in justice and conscience to pay over to him are competent evidence to support the action." [3] As to the second point, while defendant presents the situation as arising, not from a misrepresentation of fact, but as a mutual mistake, I think it plain that the origin of the matter was in some one's misrepresentation of the state of plaintiff's account, made originally to the defendant as the basis for his demands, and repeated by defendant to the plaintiff as the basis for plaintiff's payment. If, therefore, this were, as the defendant seems to think it is, a suit to set aside the agreement and assessment, plaintiff should defeat the agreement upon these direct attacks upon it. I think, however, it is plain that plaintiff's suit is not brought to set aside the agreement, but to recover money unjustly withheld from it by defendant. As far as plaintiff is concerned, the assessment may stand as an assessment-the agreement as an agreement. Plaintiff is not concerned with that. It merely sues, ex æquo et bono, to recover its money wrongfully withheld. That plaintiff should have its recovery, and upon this broad ground, I think plain from the authorities declaring the nature In Heywood v. Northern Assurance Co., of plaintiff's action, the considerations from 133 Minn. 360, 158 N. W. 632, Ann. Cas. which it springs, and the defenses to it which 1918D, 241, the matter is stated thus: "The may be asserted. An examination of the conaction of money had and received was inventtrolling authorities will satisfactorily established by the common-law judges to secure relief the correctness of this view. In Moses v. McFarlane, 2 Burroughs, 1005, where the statement of the principle was first clearly announced, it is said: "The second objection is that no assumpsit lies, except upon an express or implied contract, but here it is impossible to present any contract to refund money which the defendant recovered by an adverse suit. To which we answer, if the defendant be under an obligation from the ties of natural justice to refund, the law imposes a debt and gives an action founded on the equity of plaintiff's case, as it were, upon a contract quasi ex contractu, as the Roman law expresses it. This kind of equitable action to recover back money which ought not in justice to have been paid is very beneficial and therefore much encouraged. It lies only for money which ex æquo et bono the defendant ought to refund. It does not lie for money paid by plaintiff which is claimed of him as payable on a point of honor or honesty although it could not have been recovered from him through any course of law, as in the payment of a debt barred by the statute of limita from the narrow restrictions of the common law procedure, which afforded no remedy in too many cases of merit." In Whitcomb v. Brant, 90 N. J. Law, 245, 100 A. 175, L. R. A. 1917D, 609, it is said: "The common-law action of assumpsit for money had and received was based upon an equitable consideration, superimposed upon a pure legal or moral duty." And that a defendant cannot be heard to set up any defense against natural justice and right, see Elgin v. Gross-Kelly, 20 N. M. 450, 150 P. 922, L. R. A. 1916A, 711, where it is said: "It admits of any defense which shows the plaintiff ought not, in good conscience, to recover. 'In one word, the gist of this kind of action is that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity, to refund the money.' "The action of money had and received," says the court in Heywood v. Northern Assurance Co., 133 Minn. 360, 158 N. W. 632, Ann. Cas. 1918D, 241, "is founded on the principle that no one ought unjustly to enrich himself at the expense of another." The principle of law governing this form of action is: "Where money has been paid under a mistake as to a material fact, to one not entitled thereto, and who cannot in good conscience receive and retain it, the law raises an implied promise on his part to refund it, and an action will lie to recover it back." Elgin v. Gross-Kelly, 20 N. M. 450, 150 P. 922, L. R. A. 1916A, 711. When the fact is proved that the defendant has the money of the plaintiff, if he cannot show a legal or equitable ground for retaining it, the law creates the privity and the promise. Ann. Cas. 1918D, 246, quoting from Brand v. Williams, 29 Minn. 238, 13 N. W. 42. The evidence here establishes that the mon ey, ex æquo et bono, belongs to plaintiff; that it was wrongfully and by the assertion of an unjust and false demand exacted from plaintiff, and is being wrongfully withheld. The court will therefore in this action disregard the agreement invoked, because to permit it to be set up would result in permitting an equitable fraud—would result in sanctifying and protecting in a form of action the very basis of which is the righting of a wrong, a wrongful and unjust action. Being of the opinion that plaintiff is clearly entitled to recover the money sued for, with interest, it will be so ordered. MUTUAL LIFE INS. CO. v. DREEBEN. ATWELL, District Judge. The spouse of the defendant was insured by the Mutual Life Insurance Company. The insurance was interrupted by failure to pay a premium. The policy contained a reinstatement clause. Among other requisites was the good health of the insured. After the reinstatement the insured died. The policy contained the usual incontestability clause after two years. The beneficiary, the insured's widow, brought a suit upon the policy and later dismissed it. After its dismissal, and a day or two before two years after its reinstatement had run, the company brought this suit to cancel because tions in the reinstatement application. of alleged false and fraudulent representa- ` It is argued by the respondent that the insurance company will have, if its contention is true, a complete defense at law if and when she brings a suit upon the policy. She contends that the clause which makes the policy incontestable after two years relates only and solely to the original contract upon which it was issued, and that it does District Court, N. D. Texas, Dallas Division. not apply to the reinstatement feature, which June 20, 1927. No. 3158. 1. Cancellation of instruments 13-Insurer in life policy with incontestable clause may maintain suit to cancel for fraud, though it has legal remedy. The existence of a legal remedy by way of defense to an action on a life policy having an incontestable clause does not preclude insurer from maintaining a suit in equity to cancel for fraud. 2. Insurance 400-Incontestable clause in life policy held extended as to representations made in application for reinstatement. Reinstatement of a life policy after lapse, as permitted by its terms, does not create a new contract, but is a revival of the original contract, and a clause in the policy making it incontestable after two years applies to repre sentations made in the application for reinstatement, for falsity of which insurer may contest the policy within two years after they are made. she contends is a new contract, and that the company's defense may be urged at any time and is not limited by the two years period. The case of State Mutual Life Insurance Co. v. Rosenberry, 213 S. W. 245, by the Supreme Court of Texas, is cited as authority for this position. [1] 1. The existence of a legal remedy in the defense of an action at law on the policy, as shown in Cable v. United States Life Insurance Co., 191 U. S. 302, 24 S. Ct. 74, 48 L. Ed. 188, which was approved in American Mills Co. v. American Surety Co., in 260 U. S. 360, 43 S. Ct. 149, 67 L. Ed. 306, does not preclude the insurer, bounden by a contract with an incontestable clause in it, from proceeding at equity to cancel. Jefferson Standard Life Ins. Co. v. Keeton (C. C. A.) 292 F. 53; Jefferson Standard Life Ins. Co. v. McIntyre (C. C. A.) 294 F. 886; New York Life Ins. Co. v. Renault (D. C.) 11 F. 20 F.(2d) 395 (2d) 281. The incontestable clause is also recognized as valuable for the beneficiary. Mutual Life Insurance Co. v. Hurni Packing Co., 263 U. S. 167, 44 S. Ct. 90, 68 L. Ed. 235, 31 A. L. R. 102. [2] 2. Are false and fraudulent representations, made in an application for reinstatement, subject to the incontestability clause? The Texas case holds that they are not. The reasoning of the opinion in support of that position would be equally applicable to the incontestability of the policy with reference to any fraud or misrepresentation in its inception. The vice in the reasoning, it seems to me, is that a reinstatement gives an added element of uncertainty in the payment of the insurance, and erases from the original contract at least two of its provisions, namely, cash and loan values, and the incontestability after the lapse of a certain period. The Texas case was also based somewhat upon the Texas statute (Vernon's Ann. Civ. St. 1925, art. 5050), which provides that a policy of insurance shall contain the entire contract between the parties, and since the reinstatement was not in the original policy reconcilement was necessary. It seems to me that a more substantial rule would be to give effect to all of the provisions of the contract between the parties, because there is the same underlying reason for incontestability as to the representations for reinstatement that there is for representations as to the original contract. A party contracts with an insurance company for an incontestable clause. This clause is of value to him. He knows that after two years his beneficiary will get the insurance, if he dies, without going through a contest. If representations made as the basis for reinstatement may be left open to contest for 10 or 20 years, and then be attacked, the insured does not have this satisfaction. This certainly was not the intention of the parties. They evidenced a desire to limit the time within which the company might contest the payment of its obligation. I do not think that the contract, after reinstatement, is a new contract. That position is mythical. The contract begun a few years before, and nothing that is thereafter done to reinstate it makes it begin as of the date of reinstatement. The right of reinstatement itself is found in the contract. It is the spark that was not extinguished. Reinstatement gave it more life. It gave it additional life. It then lived, wholly, again; that which was almost dead was renewed into full vigor. While the position is not in all degrees satisfactory, it is more satisfactory, I think, if incontestability is read into all representations that the insured makes to the insurer, whether those representations be with reference to a reinstatement or with reference to the original representations that were made when the contract was issued. This position makes the two years begin to run as to reinstatement representations when they were made. Two years after reinstatement their falseness may not be advantaged by the company. This reading gives the company ample time to make investigation as to what the insured represented. It also gives a settled value to the policy. This reading lends the original stability to the contract. Great Western Life Insurance Co. v. Snavely (C. C. A.) 206 F. 20, 46 L. R. A. (N. S.) 1056; Teeter v. United Life Ins. Association, 159 N. Y. 411, 54 N. E. 72; Joyce on Insurance, p. 6122; McCormack v. Security Mutual Life Ins. Co., 161 App. Div. 33, 146 N. Y. S. 613; Pacific Mutual Life Ins. Co. v. Galbraith, 115 Tenn. 471, 91 S. W. 204, 112 Am. St. Rep. 862. Having reached this point in our study, it follows, of course, that, two years having nearly elapsed since reinstatement, the insurer was bound to protect itself against the running of that new two years. This it has done by the institution of this suit. The motion to dismiss is overruled. KALES v. WOODWORTH, Collector of Internal Revenue. District Court, E. D. Michigan, S. D. June 18, 1927. No. 7031. 1. Internal revenue 7(6)-Dividend held taxable as "income" of year when actually received (Revenue Act 1918, § 213 [Comp. St. § 63361⁄4ff]). A dividend actually paid and received by the stockholder in 1919 held, under Revenue Act 1918, § 213 (Comp. St. § 6336%ff), taxable as "income" of that year, though by decision of the state courts, previously rendered in litigation respecting it, the dividend should have been paid in a prior year when a different statute was in force. [Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Income.] 2. Internal revenue 7(6)-Dividend held not taxable as income of stockholder as of date of court order requiring its payment (Revenue Act 1916, § 31 [a], as added by Act Oct. 3, 1917, § 1211). Revenue Act 1916, § 31 (a), as added by Act Oct. 3, 1917, § 1211 (40 Stat. 337), defining dividends as "any distribution made or or dered to be made by a corporation," means a distribution by the ordinary methods of corporations, and a decree of court directing payment of a dividend by a corporation is not such an order as contemplated by the statute, and 'does not render the dividend taxable as income of stockholders received as of its date. At Law. Action by Alice G. Kales against Fred L. Woodworth, Collector of Internal Revenue. Judgment for defendant. Beaumont, Smith & Harris, of Detroit, Mich., for plaintiff. Delos G. Smith, U. S. Atty., and Wallace Visscher, Asst. U. S. Atty., both of Detroit, Mich., A. W. Gregg, Gen. Counsel, Bureau of Internal Revenue, and John R. Wheeler, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for defendant. SIMONS, District Judge. This is a suit brought to recover income taxes paid under protest. Special findings of fact have been made upon request of counsel, and it is sufficient for the purpose of this opinion to briefly summarize them. The plaintiff was from 1916 to 1919 a stockholder in the Ford Motor Company, a Michigan corporation. The taxes assessed against her by the government, paid under protest, and now sought to be recovered, arise out of two cash dividends paid to the plaintiff by the company. The first dividend was the plaintiff's distributive share of the socalled "Dodge" dividend, paid to her July 10, 1919, and the second dividend one paid to the plaintiff in January, 1917. With respect to the Dodge dividend, its history may be briefly stated as follows: The Ford Motor Company had in its treasury at the close of the fiscal year ending July 31, 1916, a large cash surplus. John and Horace Dodge, stockholders of the company, demanded that a portion of this surplus be distributed as dividends, in addition to the regular dividend. The directors refused the demand, and the Dodges brought suit in equity to compel distribution. The circuit court for the county of Wayne, and the Supreme Court of Michigan, upon review of the circuit judge's decree, held that the action of the directors in refusing to make the distribution was arbitrary and exceeded their discretion, and ordered them to make distribution of 50 per cent. of the said cash surplus, with interest from December 5, 1917, the date of the circuit court's decree. The directors on July 10, 1919, made the distribution as ordered, and a dividend was paid 'to and received by the plaintiff on that day. Plaintiff thereupon filed an amended 1917 re turn, including her portion of the Dodge dividend, and paid an additional tax thereon at 1916 rates. The reassessment made by the Commissioner of Internal Revenue was upon the theory that the Dodge dividend was 1919 income, taxable at 1919 rates. The second item of dividend involved in this controversy was paid to the plaintiff on January 19, 1917. It was included by the plaintiff in her report filed in June, 1918, and the tax paid thereon computed at 1916 rates. The government assessed an additional tax upon this dividend, upon the theory that 68 per cent. of it was payable out of undivided profits or surplus accumulated during the first 18 days of the year 1917, and should be taxed at the 1917, instead of the 1916, rate. This added tax was also paid by the plaintiff under protest, and the plaintiff, having exhausted all her proper remedies in proceedings before the department for refund in respect to the added taxes upon both dividends, now sues to recover them. It is conceded that all proper steps were taken preliminary to the filing of this suit, as are required by law, that the suit is properly brought, and that the court has jurisdiction. Disputed issues both of fact and law were submitted to the court without a jury, and the court is asked to make findings of fact and to apply its conclusions of law. [1] The first and more important aspect of the controversy relates to the Dodge dividend. It was declared on July 10, 1919, and paid to and received by the plaintiff on or about the same day. The statute in force upon the date of the declaration, payment, and receipt of the Dodge dividend was the 1918 act, effective January 1, 1918. Section 213 of the act (Comp. St. § 6336ff) provided that all gains, profits, and income derived from dividends shall be included in the gross income for the taxable year in which received by the taxpayer. The statute in this respect is clear and unambiguous, and the Dodge dividend must be considered as part of the plaintiff's 1919 income, unless, as claimed by the plaintiff, that dividend had acquired a different status by reason of the holdings of the circuit and Supreme Courts of Michigan in the Dodge litigation, and the consequent necessity of applying to those dividends the statute applicable at the time the dividend was ordered paid, or should have been paid. It is contended, first, upon behalf of the plaintiff that the Dodge dividend should have been taxed as 1916 income, at 1916 rates. It is difficult to see how such contention can be given serious consideration. There was no receipt by the plaintiff of dividend in 1916, |