Darnell v. Woodruff

DESMOND, J., pro tem. From a judgment secured by plaintiff in a trial without a jury, defendant appeals upon the grounds that the court erred in ruling upon points of law occurring in the course of the trial and in making certain findings upon which the judgment rests, which are contrary to or not justified by the evidence. Despite the formidable presentation of this appeal by means of a voluminous transcript and a book of exhibits exceeding five hundred printed pages, we find, upon analysis, a comparatively simple case.

The defendant struck oil in Oklahoma in 1919 and before the close of 1922 had received income from that source amounting to more than a million dollars. In 1927 he employed plaintiff, an income tax specialist, to represent, him before the department of internal revenue at Washington, his property having been attached for a claimed failure in respect, to his income tax return, five years previously, in the year 1922. Plaintiff, at the time of this employment, was a consultant in tax matters for Standard Oil Company of New Jersey, and also for the company to which defendant had leased his oil land on a 50 per cent royalty basis, namely, Carter Oil Company, owned by the Standard Oil Company of New Jersey. By reason of this connection, plaintiff, having access to production figures and other data, was in position to present to the government claims for depletion in behalf of defendant and his wife. For this he rendered a bill “for services, traveling and hotel expenses, telegrams and telephone”, amounting to $2,619,53, which was paid without demur. Defendant testified, as to the year 1923, that he would estimate his gross income at $200,000; as to 1925, $75,000 less—$125,000. “I couldn’t give an approximation of within a hundred thousand dollars. I don’t think I kept any books or records showing those facts in 1925; I did in 1926 and 1927. I employed Mr. Gardenhire in the latter part of the year 1926 and all [630]of 1927 and he quit in the spring of 1928. He was my private secretary and bookkeeper. I don’t know whether he destroyed those books or not.” Notwithstanding that he engaged in business on a large scale during 1925 and in subsequent years, holding a great many oil leases in Oklahoma, owning ranches and homes in several different states, having accounts in a goodly number of banks, buying and selling stocks and bonds, and as a side line, carrying on a business dealing in antiques, having during at least a part of the time the assistance of a secretary-bookkeeper, and having had prior direct contact with the internal revenue department, this defendant failed to file an income tax return for the years 1925, 1926, 1927, 1928, 1929 and 1930. The department in 1931 endeavored, by every reasonable means, to get him to make a report on this matter, forwarding its communications by registered mail and having a representative interview him, all to no avail. At last, the final notice, advising him of impending distraint proceedings, bringing no response, the defendant claiming to be ill then and on other occasions, the internal revenue collector for the Southern California District in early December attached his property, including an active account with a stockbroker, running into many thousands of dollars. Defendant immediately, on December 7, 1931, wired the plaintiff .at his New York office telling him of his predicament and closing with the words: “I want to employ you immediately to represent me in this matter as in the past.” The plaintiff undertook the employment, asking for and receiving a retaining fee of $500 and on December 9th, left New York for Washington. Two days later he advised defendant by wire as follows: “I have done the best I could in the department, and on my assurance that the matter of the determination of your tax would be gone into at once so that your true liability could be determined, they are wiring the. Collector this morning asking him to try to arrange things so that you can at least turn around.” Immediately afterward the government representative called upon defendant and arranged for a brief postponement of action which, upon the posting of a bond, as suggested by plaintiff, became an indefinite postponement, the result being that distraint proceedings were abandoned and a settlement ultimately effected with the government.