The Federal Reporter with Key-Number Annotations, Volume 250: Cases Argued and Determined in the Circuit Courts of Appeals and District Courts of the United States, August-October, 1918. Page: 2
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250 FEDERAL REPORTER
Andrews, Streetman, Burns & Logue and R. C. Fulbright, all of
Houston, Tex., for plaintiff in error.
John E. Green, Jr., U. S. Atty., of Houston, Tex., for the United
Before WALKER and BATTS, Circuit Judges, and GRUBB, Dis-
GRUBB, District Judge. This is a writ of error to a judgment of
the District Court of the United States for the Southern District of
Texas in favor of the defendant in error, the United States, against
the plaintiff in error for the amount of taxes claimed to have been due
and unpaid under the corporation tax law of August 5, 1909 (36 Stat-
utes at Large, 11), for the years 1909, 1910, and 1911. The case was
tried by stipulation before the District Judge without a jury, and the
error relied on is that the evidence does not support the judgment ren-
dered by him. The evidence was partly stipulated and partly oral, but
there was not any dispute of fact on the trial below, and but a single
question of law is presented for decision.
[1, 2] The plaintiff in error was organized under the laws of the
state of Texas providing for the organization of terminal railway com-
panies. It was organized for the purpose of performing terminal serv-
ices for four railroad companies, which were its stockholders, and
which are referred to as "tenant lines." In order to finance its or-
ganization, it was necessary to borrow a large sum of money, and the
credit of the terminal company was not sufficient to accomplish the
needed loan. An arrangement was reached by which the tenant lines
agreed with the Central Trust Company of New York, and with the
terminal company, that they would pay in equal parts the annual in-
terest and sinking fund requirements of a loan from the Central Trust
Company to the terminal company, to be evidenced by bonds in the
amount of $5,000,000, secured by a mortgage on the property of the
terminal company. The capital stock of the terminal company was
subscribed for and paid for by the four tenant lines in equal parts,
and was in the amount of $25,000. The current operating expenses
of the terminal company were to be paid by the tenant lines ratably
according to the extent of the user by them respectively, to be deter-
mined according to a wheelage basis. The stock of the tenant lines
was agreed to be and in fact was pledged to the Central Trust Company,
to secure the loan, with the privilege of sale, in case of default on
the part of any tenant company in its payments of interest and for the
sinking fund. In case of such default, provision was made for the
elimination of the defaulting tenant line from the privilege of being
served by the terminal company and from the use of its property. It
was also provided that any of the tenant companies could withdraw,
under certain conditions, from the agreement, and it was thereby and
thereafter relieved from further obligation for interest and sinking
fund payments. The tenant lines became liable to pay the principal
of the loan, only through their agreement to pay the sinking fund in-
stallments, while they continued tenant lines.
The terminal company executed the bonds and mortgage which
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The Federal Reporter with Key-Number Annotations, Volume 250: Cases Argued and Determined in the Circuit Courts of Appeals and District Courts of the United States, August-October, 1918., legislative document, 1918; Saint Paul, Minnesota. (digital.library.unt.edu/ark:/67531/metadc38821/m1/17/: accessed April 28, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.