A similar situation was presented in the case of Lesley v. Kite, 192 Pa. 268, 43 A. 959. The suit was brought by creditors, on behalf of themselves and all other creditors, to reach a fund which has been withheld by the city under a contract. A city ordinance of the city of Philadelphia provided: "The director of public works shall give one month's notice of the date of final payment, and satisfactory evidence shall be furnished that full compensation has been made for all labor due and materials furnished previous to drawing warrant for final pay

ment."

Referring to this section of the ordinance, the court said: "Properly construed, the third section of the ordinance relied on by appellants never created, nor was it intended to create, any contractual or other relation between the city and its contractors for municipal improvements, or subcontractors under the latter, or between any of

them, that would authorize the maintenance

of any such proceeding as that now under consideration. If it did, it would be clearly ultra vires the city councils and also void, as being manifestly in conflict with sound principles of public policy long recognized principles of public policy long recognized and firmly established in this commonwealth." The court held that the bill of complaint stated no cause of action.

The case of Lombard Governor Co. v.

Mayor and City Council of Baltimore et al.,

121 Md. 303, 88 A. 140, 48 L. R. A. (N. S.) 678, Ann. Cas. 1915B, 865, also was a suit in equity by a materialman to reach an unexpended balance in the hands of the city of Baltimore due under a contract. There was an ordinance of the city of Baltimore which provided that in all contracts for the construction of city buildings there should be inserted a clause stipulating and providing that the contractor should, at the time of tendering the delivery of completed buildings, also produce vouchers showing settlement in full by him with all persons or corporations who furnished labor or materials used in the construction of the building. The contract in question provided that the contractor should furnish the city with satisfactory evidence that all laborers and materialmen who had given written notice to the city, before or within 10 days after the completion and acceptance of the whole work, that any balance for labor or ma

terial was due and unpaid, had been fully paid or satisfactorily secured, and that, in case such evidence was not furnished, such amount as was necessary to meet the claims of laborers and materialmen might be retained from any moneys due under the contract until such liabilities should be fully discharged or the notice withdrawn. It contained the further provision that the city. might also, with the written consent of the contractor, use any moneys retained, for the purpose of paying for labor and material, claims for which had not been filed. The court came to the conclusion, on the authority of Lesley v. Kite, supra, Columbia Brick Co. v. District of Columbia, 1 App. D. C. 351, and Merwin v. Chicago, 45 Ill. 133, 92 Am. Dec. 204, that the action of the lower court in sustaining the demurrer and dismissing the bill was proper.

These cases indicate that, in the absence of a statutory requirement that a city pay claims for material furnished to a contrac

tor, or that it withhold funds to insure pay

ment of such claims, no enforceable lia

bility on the part of the city exists therefor. We find no Colorado case holding to the

contrary.

[2] There was no privity of contract between the city and the plaintiff in this case, no statute requiring the city to pay its claim or to act as a trustee for its benefit, and no agreement by the city to pay the plaintiff if the contractor failed to do so. A rule of

law which would require a municipal corporation to pay for material furnished to a person to whom it lets a contract, because of the failure of its officers to require a sufficient bond, or because of their failure to exercise the privilege of withholding from the contractor payment of money due him, until claims for material are paid, would be against sound public policy. As was said in the case of Merwin v. Chicago, supra, "A municipal corporation is a part of the government. Its powers are held as a trust for the common good. It should be permitted to act only with reference to that object, and should not be subjected to duties, liabilities, or expenditures merely to promote private interest or private convenience."

The amended complaint stated no cause of action against the city, the demurrer was properly sustained, and the judgment of dismissal is affirmed.

2. Internal revenue 7(17)-One purchasing partners' interest, with bonus for good will, is entitled, on subsequent sale of one-third Interest, without payment for good will, to deduct only proportionate share in determining income tax (Revenue Act 1918, § 214a, subd. 4 [Comp. St. § 6336%g]).

Where partner, after purchasing interest of copartners amounting to 65 per cent. and paying them a bonus, which was carried on books as good will, subsequently sold a one-third interest, without receiving anything for good will, he is entitled, in determining income tax under Revenue Act 1918, § 214a, subd. 4 (Comp. St. $

6336%g), to deduct only one-third of amount allowed original partners, in absence of showing of value of 35 per cent. on March 1, 1913.

In Error to the District Court of the Unit

lished a competing business, representing to their former customers that they were in fact the old firm. One year later Orr sold to Walton Cunningham an undivided one-third interest in the entire business, consisting of merchandise, accounts, fixtures, and all other assets of the company. Cunningham refused to pay anything for good will. In his income tax return for 1920, Orr claimed a loss of $20,500 in good will. The claim was disallowed, and, after paying his taxes for that year, Orr brought this suit to recover the taxes he had paid as a result of the disallowance of that item. The case was tried by agreement before the court without a jury.

Seasonable requests by the government for findings of fact were not made, and the exceptions which it filed to those made by the court are not sufficient to raise any question as to their correctness. The findings were substantially the same as the facts averred in the declaration. Under the assignments of error, the question presented to us is whether the facts found by the lower court warranted a judgment against the government in an amount representing the difference between taxes paid by plaintiff for the year 1920 and what he would have paid, had he been allowed as a loss the $20,500 which he paid to his former partners.

Suit by Robert Orr, Jr., against L. P. Brewer, Collector of Internal Revenue. Judgment for plaintiff, and defendant brings

error. Reversed and remanded.

Frederick W. Dewart, Sp. Atty., of Washington, D. C. (A. V. McLane, U. S. Atty., and Milton Davenport, Asst. U. S. Atty., both of Nashville, Tenn., and A. W. Gregg, Gen. Counsel, of Washington, D. C., on the brief), for plaintiff in error.

R. Boyte C. Howell, of Nashville, Tenn., for defendant in error.

Before DENISON and MOORMAN, Circuit Judges, and KILLITS, District Judge.

PER CURIAM. Prior to March 1, 1913, defendant in error became one of three partners in a wholesale grocery business in Nashville, Tenn., operating under the firm name of Orr, Mizell & Murrey. On September 1, 1919, he purchased the interests of his copartners therein (65 per cent. of the whole), paying them, in addition to the inventory value thereof, a bonus of $20,500, which was thereafter carried on the books of his company as good will. Mizell and Murrey immediately estab

will are concededly taken into account in the assessment of income taxes. Section 214a, subd. 4, of the Revenue Act of 1918 (Comp. St. § 6336%g), provides that, in computing net income, there shall be allowed as deductions "losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business." It is, we think, indisputable that losses occurring in trade or business, which are deductible as such in computing net income, are only such losses as have been realized. If plaintiff had sold at a profit a one-third interest in the good will he purchased from his former partners, he could not have been charged as income with the increase in the book value of the entire good will, but only with the profit derived from that part which he sold. Good will may fluctuate in value, and there is no way of arriving at losses or profits thereon for income purposes, except by comparison of sale receipts with cost, or with the value as of March 1, 1913, if it was acquired prior to that date.

Plaintiff contends that the sale of September 1, 1920, demonstrated that the good will of the firm had been wholly lost or destroyed during the tax year, and for that reason he was entitled to deduct the value of the

ELLICO v. UNITED STATES.

CARDINAL v. SAME.

Circuit Court of Appeals, Sixth Circuit. May 13, 1927.

Nos. 4698, 4699.

1. Witnesses 374(1)—Evidence that witness in liquor case offered not to testify, if defendants would buy his property, is admissible on credibility.

Evidence that government's witness in liq

uor case offered to go away and not testify, if

defendants would buy his property, is admissible as touching his credibility.

2. Criminal law 921-In liquor case, excluding admissible testimony on credibility of witness otherwise discredited held not to require new trial (Comp. St. § 1246).

Rejection in liquor case of testimony admissible as to government witness' credibility held not prejudicial error, requiring new trial, under Judicial Code, § 269 (Comp. St. § 1246), empowering courts to grant new trials, where other evidence discredited witness, and it was

not reasonable to suppose the excluded proof

would have affected verdict.

In Error to the District Court of the United States for the Western District of Michigan; Fred M. Raymond, Judge.

Henry Ellico and William Cardinal were convicted in separate cases involving unlawful sales of intoxicating liquor, and they bring error. Judgments affirmed.

O. J. Larson, of Duluth, Minn., for

plaintiffs in error.

Edw. J. Bowman, U. S. Atty., of Grand Rapids, Mich., for the United States.

the same class as a willingness to testify corruptly, although the discrediting effect is more uncertain and remote. Such testimony so touches the specific credibility of a witness that it is admissible.

[2] It does not follow that its rejection will always be prejudicial error under section 269 of the Judicial Code (Comp. St. § 1246). In this case Van's testimony was only confirmatory of that of the seemingly credible prohibition agent; Van was a "stool pigeon" who, for pay, was helping to get his old friends into trouble; he had several times said that on this occasion he had been so drunk that he could not remember what happened; he was thus thoroughly discredited; any additional, possible, though uncertain, discredit arising from his offer not to testify, was not likely to have additional substantial effect; the jury evidently believed the prohibition agent; it is not reasonable to suppose that the excluded proof would have affected the verdict.

Hence we conclude that a new trial is not mandatory.

We have examined all the errors assigned; but the others are so far immaterial, or so completely covered by our familiar earlier rulings, that they do not need attention.

The judgment in each case is affirmed.

NORRIS et al. v. BERGDOLL et al.

PER CURIAM. [1] In these cases, which involve unlawful sales of intoxicat ing liquor, the government's witness, Van, who had assisted the prohibition officer in getting the evidence, testified to the facts of the sales charged. Later the defendants offered evidence that Van had proposed that, if they would buy his property, so he could be able to go away, he would go and would not testify. This, with other similar evidence, was excluded. While such a proposition might imply only that he was reluctant to appear as a witness and tell the truth, it was also open to an implication that his testimony would be affected by their willingness to do him a financial favor; and, as in every such situation, there lurked a threat that by his conduct and testimony as a witness he would reward or punish. A willingness to disappear corruptly is of

1927.

No. 2439.

War 12-Debt contracted after October 6, 1917, not barred from allowance against Alien Property Custodian (Trading with the Enemy Act, § 9 [e], as amended by Act June 5, 1920 [Comp. St. § 31151⁄2e]).

The provision of trading with the Enemy Act, § 9 (e), as amended by Act June 5 1920 (Comp. St. § 31151⁄2e), that no debt should be allowed as against the property in the hands of the Alien Property Custodian, "unless it was owing to and owned by the claimant prior to October 6, 1917," does not apply to nor exclude allowance of a valid debt contracted after that date by one whose property was afterward seized by the Alien Property Custodian.

In Equity. Suit by Thomas J. Norris and D. Clarence Gibboney, administrators c. t. a. of the estate of D. Clarence Gibboney, deceased, against Grover C. Bergdoll, Thomas W. Miller, Alien Property Custodian, and others. On motion for reargument. Denied.

Vincent A. Carroll, of Philadelphia, Pa., for defendant Alien Property Custodian. George W. Coles, U. S. Atty., of Philadelphia, Pa.

DICKINSON, District Judge. This motion was filed at the suggestion of the court as an act of simple justice to the assistant district attorney who had in charge the interests of the United States. On it the whole question has been reargued.

The case has a dual aspect. In one phase it is a suit against Grover C. Bergdoll; in another phase it is a proceeding to have the United States release its claim to such part of the property in the custody of the Alien Property Custodian as represents a "debt" due to the late D. Clarence Gibboney. We have made a finding in respect to this debt, but made it on the assumption that the United States had no interest in the cause. This assumption was an unfounded one, and its statement did an injustice to the district attorney who represented the interests of the United States in the controversy. It may be premised that this proceeding has its basis in the provisions of the act of Congress under authority of which all the property of Grover C. Bergdoll, which could be reached, was seized.

The plaintiffs aver that Bergdoll was indebted to their decedent, and brought this action to have the question of debt (which Bergdoll denied) determined. Two jurisdic tional questions were raised by the Alien Property Custodian. The district attorney was not of counsel at that time. One was that the claim of the plaintiffs was not for a "debt," within the meaning of the act of Congress; the other was that the indebtedness "was not owing and did not belong to" the plaintiffs before October 6, 1917, and the conclusion was invoked that the plaintiffs could not recover anything out of the funds in the hands of the Alien Property Custodian. The first of these questions was ruled against the United States. The second was not discussed, because the then counsel for the Alien Property Custodian did not press it. The motion to dismiss the proceedings, based upon the two grounds stated, was accordingly denied, and the cause came up for trial.

At the trial Bergdoll was represented by his attorney in fact and by counsel. The district attorney appeared as counsel for the

the conduct of this branch of the case, but gave clear and positive notice on behalf of the United States that it stood upon the second ground of jurisdictional objection above mentioned. The first question is admittedly now out of the case because of the ruling of the Supreme Court in Miller v. Robertson, 266 U. S. 243, 45 S. Ct. 73, 69 L. Ed. 265. Of course, if the question of indebtedness was determined against the claimant, there was no need for the United States to intervene; but, if the claim was sustained, notice was given that the United States desired to be heard, and the district attorney submitted a brief in support of the position taken. By general acquiescence the discussion of this question was deferred until after the issue between Gibboney and Bergdoll had been determined.

The assistant district attorney who had the interests of the United States in charge did not abandon the position taken nor waive the point made, but, on the contrary, has been insistent upon it and filed a brief in which the objection raised was fully discussed in all its aspects. There was something of an interval between the conclusion of the trial and the ruling of the cause, due to some delay in the transcription of the exhibits which were put in evidence. What was done was that the case was determined with only a perfunctory reference to the question raised by the United States. When the omission to give it real consideration was called to the attention of the court, leave was given the district attorney to file the present motion for a reargument solely for the discussion of this second question, and it is now before us.

Counsel for the claimant assumes his full share for the mistake made, but it was really due to a misinterpretation by the court of the statement made by him. The statement was that the objection in question had been withdrawn and waived. He referred, however, to the original failure to press the point, and its practical abandonment, not to any waiver by the district attorney. He now reurges this upon us and this presents the first question for discussion.

1. Has the right to make this objection been lost by its once abandonment? The conclusion we have reached is that it is still in the case. In the first place, the question is really one of jurisdiction. The proceeding is statutory, and really one against the United States in its ultimate results. The right of the claimant is really a conditioned privilege. If