tends not beyond 999 years from November 4, 1868, less one day. Under the terms of the lease, the complainant was "required to maintain and perpetuate said railroad and branches and to maintain and keep the same in good order and repair and fit for efficient use at its own cost and charges," and "to well and efficiently operate said railroad," it being "the true intent and meaning [of the lease] that the demised premises shall be so worked and maintained by the plaintiff as to secure the largest amount of revenue possible therefrom." For such work and materials as were required for repairing, renewing, improving, and increasing weight of rails, yard tracks, water supply facilities, bridges, equipment and facilities, generally called "additions and betterments," the Central Railroad spent $103,496.68. admitted that this sum "was expended by plaintiff during the calendar year 1916 for additions and betterments necessary to maintain and perpetuate said Lehigh & Susquehanna Railroad and branches and to keep and maintain the same in good order and repair and fit for efficient use, under the terms of the said lease."

The Central Railroad was in possession of the Wilkes-Barre & Scranton Railroad by virtue of a lease which is dated May 1, 1888, and runs during the life of the charter less one day. This lease contains the same covenants as to operation and efficiency as does the lease in the case of the Lehigh & Susquehanna Railroad, and in addition provides that, if the covenants are broken and not performed upon notice, and if the covenants in the lease of the Lehigh & Susquehanna Railroad are broken and that road reverts to the lessor, the Wilkes-Barre & Scranton Railroad shall also revert to the lessor. The complainant expended on building or renewing a station and retaining wall and bridge at Scranton $2,507.35. It was admitted that this money was expended in the year 1916 for "additions and betterments necessary to maintain and perpetuate said Wilkes-Barre & Scranton Railroad and to keep and maintain the same in good order and repair and fit for efficient use, under the terms of the aforesaid lease."

The complainant was in possession, as tenant in common with the Philadelphia & Reading Railroad Company, of the Allentown Terminal Railway under a lease for 999 years from July 10, 1889. The lease contained practically the same covenants as did the other two leases. The Central Railroad spent $232.31 as its share on improvements, interchange and rearrangement of tracks, etc. It was admitted that this amount was spent in 1916 "as its share of the cost of additions and betterments to said Allentown Railroad which were necessary for the operation and maintenance of said railroad in good working order."

During the year 1916 complainant held Ogden Mine Railroad, within the state of New Jersey, for a term of 999 years. Under the terms of the lease, complainant is "required to at all times maintain and keep said railroad and all its appurtenances in good repair and condition and in all respects fit for use as a railroad." The lease further provides that, if the complainant "shall fail to perform any of the covenants contained in the lease, within a reasonable time after request in writing so to do, then the lease may be terminated and de

(289 F.)

clared forfeited and at an end." It was admitted that $855.22 was expended by complainant in 1916 "for additions and betterments to said railroad necessary to maintain and keep the same in good repair and condition and in all respects fit for use as a railroad."

The complainant in 1916 was in possession of the Dover & Rockaway Railway under a lease dated April 26, 1881, for 999 years from April 1, 1881. The lease provided that "plaintiff is required at all times to maintain and keep the said railroad and all its appurtenances in good repair and condition and in all respects fit for use as a railway." $6,966.23 was spent in installing a telephone system on the road, renewing a bridge at Dover, increasing weight of rails, and improving track material. It was admitted that these expenses were "for additions and betterments to said Dover & Rockaway Railway necessary to maintain and keep said railway and its appurtenances in good repair and in condition in all respects fit for use as a railway under the terms of the aforesaid lease."

New York City entered into a lease, for what is known as Pier 9 in that city at the foot of Carlisle street, with the Lehigh Valley Railroad Company, dated January 13, 1914, and assigned it to the complainant. The city covenanted to condemn all the interest of private owners in Pier (old) 9, and the complainant agreed to pay the entire cost of condemnation and to build, and in pursuance thereof did build, Pier (new) 9, a stone bulkhead wall, sheds on the pier, and a wharf extending 50 feet inshore from the bulkhead. It agreed to pay rent at the annual rate of 272 cents per square foot for that portion not acquired, and $1 for that portion acquired, from private owners. The lease also provided, if the entire cost of condemnation and improvements to the complainant was less than $2,750,000, it was to pay in addition 52 per cent. on the difference between the $2,750,000 and the actual cost, but if the cost was more than $2,750,000 the complainant was to be credited on its average annual rental with 52 per cent. on the difference for a term of 39 years, the lease otherwise being for a term of 10 years. The lease contained other provisions, under certain contingencies not here material for the extension of the term. The city could terminate the lease at any time, if complainant failed to perform any of its covenants. In 1916, complainant spent in the work provided for by the lease $1,525,308.72.

Complainant was in possession of Pier 80 at the foot of West Fortieth street and Pier 46, North River, in 1916, in New York City, under leases for a 10-year term from the city. Under these leases complainant was required to do such dredging as the commissioner of docks of the city considered necessary. Complainant did dredging which the commissioner considered necessary, and for which it spent $28.72 on the one, and $38.10 on the other. The leases provided that the city could terminate them if complainant failed to observe their covenants.

Under two other leases from the city complainant was in possession of extensions to Piers 39 and 46, North River. These leases required the complainant to build extensions to these piers, and in so doing it spent $6,003.78 and $14,486.32 on each extension, respective

ly. If complainant failed to perform the covenants of the leases, the city had the right to terminate them.

All these various properties, of which the Central Railroad was in possession under leases and on which it expended the $1,659,924.33, with their improvements, temporary and permanent, with their “additions and betterments," revert to the lessors upon the expiration or termination of the leases.

Were these expenditures ordinary and necessary expenses paid within the year 1916 as a condition to the continued use and possession of the properties? The force and effect of the provisions of the lease and of the stipulated facts require an affirmative answer to this question. Article 140 of regulation 33 provides that:

"The cost of erecting permanent improvements on ground leased by a company, is held to be an additional rental and is therefore a proper deduction from gross income, provided such buildings and improvements, under the terms of the lease, revert to the owner of the ground at the expiration of the lease. In such case, however, the cost will be prorated according to the number of years constituting the term of the lease and the annual deduction will be an aliquot part of such cost."

This regulation is the interpretation of the statute by the department to which its enforcement is entrusted. It is conceded by both parties that the expenditures for these improvements are "additional rentals." Consequently the expenditures should be deducted from the gross income in order to ascertain the net income on which the tax must be paid. The real question is as to the time when the deduction should be made. The government contends that they should be prorated in each case according to the number of years constituting the lease, and that an aliquot part only should be deducted annually. The complainant, on the other hand, contends that they are rentals paid within the year 1916 as a condition to the continued use and possession of the properties and should be deducted for that year. A regulation of a governmental department charged with the enforcement of an act has the force and effect of law, unless in itself it is unreasonable, inappropriate, and inconsistent with express statutory provision. United States v. Morehead, 243 U. S. 607, 613, 37 Sup. Ct. 458, 61 L. Ed. 926; Maryland Casualty Co. v. United States, 251 U. S. 342, 349, 40 Sup. Ct. 155, 64 L. Ed. 297.

The question is reduced to this: Is the insistence that these expenditures be prorated in each case according to the number of years constituting the term of the lease, and that the aliquot part be deducted annually, inconsistent with the express provisions of the statute? The statute expressly provides that all such rentals "paid within the year" may be deducted "from the gross amount of income received within the year," in order to ascertain the net income to be taxed. The evident intention of the statute is that the deduction of such rentals shall be made from the gross income "within the year" in which they were paid. McCoach v. Minehill Railway Co., 228 U. S. 295, 304, 33 Sup. Ct. 419, 57 L. Ed. 842. There is no hint in the statute that they shall be prorated over the term of years of the lease. We think the provisions of the statute are plain; but, if there be doubt, that

(289 F.)

doubt must be resolved against the government. Gould v. Gould, 245 U. S. 151, 38 Sup. Ct. 53, 62 L. Ed. 211. That part of the regulation providing that only an aliquot part of such rentals shall be deducted each year during the life of the lease, we think, is inconsistent with the plain provisions of the statute, and therefore the decree of the District Court is

Affirmed.

GODCHAUX SUGARS, Inc., v. MERIDIAN WHOLESALE CO.

(Circuit Court of Appeals, Fifth Circuit. May 4, 1923.)

No. 4017.

I. Frauds, statute of 89(1)-Recognition of contract for sale of sugar and acceptance of part thereof held to take contract out of statute.

A contract for the sale of sugar was taken out of the statute by letter of buyer referring to seller's "confirmation on this sale," which contained the terms of the sale, and by buyer's acceptance of part of the sugar ordered and payment therefor at the terms stated in the confirmation. 2. Sales 50-Buyer held estopped to deny existence of contract.

Where buyer of large quantity of sugar shipped in installments, after accepting part of the sugar, did not, in its letter to seller, contend that it had not assented to the terms stated in the broker's report of the sale, or deny the existence of the contract, but announced its purpose not to accept further shipments, unless it was allowed a cash discount thereon, which it had been allowed on previous contracts, and on receipt of reply to such letter sent its check for full invoice price of sugar theretofore received by it, it could not, on trial of action later brought by seller for unpaid balance on such contract and damages for refusal to accept later shipment, change its position and successfully contend that there never was a contract, in that it understood, when it gave its order, that the discount was to be allowed, and that the minds of the parties did not meet.

In Error to the District Court of the United States for the Southern District of Mississippi; William B. Sheppard, Judge.

Action by the Godchaux Sugars, Incorporated, against the Meridian Wholesale Company. Judgment for defendant, and plaintiff brings error. Reversed.

This was an action by the plaintiff in error, Godchaux Sugars, Incorporated (herein called plaintiff), against the defendant in error, Meridian Wholesale Company (herein called defendant), to recover the alleged balance of the price of sugar shipped by plaintiff to defendant on June 21, 1920, and the amount of the difference between the alleged contract price of sugar shipped by plaintif to defendant in August, 1920, and the price received on a sale of that sugar on defendant's account after defendant had refused to accept the last-mentioned shipment, with interest on said amounts.

The defendant pleaded: (1) That it did not promise in manner and form as alleged by plaintiff; (2) that the supposed writing obligatory in the declaration mentioned is not its deed; and (3) that the several supposed contracts in the declaration mentioned were for the sale of goods, wares, or merchandise for the price of $50 or upward, and the defendant, being the buyer, did not receive part thereof, and did not actually pay or secure the purchase money or part thereof in pursuance of said alleged contract of sale, and no note or memFor other causes see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

orandum in writing of said bargain was made and signed by defendant or by its agent thereunto lawfully authorized.

Plaintiff joined issue on those pleas. Evidence was adduced to the following effect:

Plaintiff sent the following telegram on the day of its date, the addressees being merchandise brokers at Meridian, Miss.:

"Hayward & Scott, Meridian, Miss.

"New Orleans, La., May 26, 1920.

"Have purchased raws at price which will permit us to offer few cars of sixty thousand pounds each granulated at twenty-eight half cents net cash on receipt of documents. We have allotted you six cars of sixty thousand pounds each shipment June and ten cars shipment August subject reply Friday morning. Suggest that you give only one car to any one firm so as to distribute same as much as possible. Godchaux Sugars, Inc."

The words "net cash" were known to the trade to mean that the face of the invoice must be paid within seven days after its date, and that there is no discount. N. O. Scott, a member of the firm of Hayward & Scott, testified that upon the receipt of the above telegram he took it to defendant's place of business and exhibited it to Mr. T. J. Bolster, defendant's manager, whereupon Mr. Bolster said defendant would take one car for each month, June and August. Mr. Bolster testified that he did not see that telegram until after this suit was brought; that on the occasion in question Mr. Scott came into defendant's office and said, “Godchaux is offering sugar for June and August delivery at 282 cents;" and I said, “What are the other jobbers doing?" and he said, "They are taking theirs;" and I said, "I'll take mine. ** There was nothing said about terms." There was a custom in that territory to allow 2 per cent. discount where a sale of sugar was made without terms being mentioned. After Scott saw defendant and other jobbers, he wired plaintiff the amount of sugar his firm had sold, and when he received an answer. to his telegram confirming it, he made up triplicate reports of sale covering each purchase and delivered or mailed one to each purchaser, mailed one of each to plaintiff, and retained one of each. The following was the report of .sale sent or delivered to defendant:

"Meridian, Miss., 5-27-20.

"Sold to Meridian Wholesale Company, Meridian, Mississippi, by Godchaux Sugars, Incorporated, New Orleans, Louisiana. Terms net cash. Shipment, 600 sacks in June. Same quantity in August, 1,200 100 pound sacks standard fine granulated 281⁄2 net cash, f. o. b. refinery. Our wire 5-28-20. Your wire 5-28-20. Thanks."

On that instrument was stamped the words: "Received May 29, 1920. Meridian Wholesale Company." That report of sale was made by filling in a blank form of Hayward & Scott. Plaintiff usually furnished the brokers with a pad of printed blank forms for reporting sales. The above set out report of sale was made on one of the brokers' forms, because they were then out of the plaintiff's forms. The following were the initial words of one of plaintiff's printed forms: "Buyer's Copy. Godchaux Sugars, Incorporated." That form was on paper of a different color from that of the form of the brokers which was used. On May 31, 1920, plaintiff wrote to defendant as follows:

"You are no doubt aware of the present scarcity of equipment, in view of which the railroads have lately been furnishing us with only very large cars, which they have stipulated that we load to capacity, and in view of this situation we write to inquire whether it will not be satisfactory for us to load in one car the 400 bags due you for shipment in June at 162 cents, less two, and the 600 bags at 281⁄2 cents as per order given Hayward & Scott on the 27th, in the event of which we will be able to make very prompt shipment. Awaiting your advice, and with best wishes, we remain. very truly yours."

Pursuant to a subsequent request made by the defendant for the shipment at once of 600 100-pound sacks of sugar, plaintiff, on June 21, shipped to defendant in one car 600 bags of sugar, 400 thereof to apply on and complete the contract of February 25, and 200 thereof to apply to the contract of May 27. On the same day plaintiff sent to the defendant the following invoices: