Trusts for third
parties Page2
Carroll J.
Donohue, Wayne H. Bigler, Jr., Husch, Eppenberger, Donohue, Elson &
Jones, Twelfth Floor, Buder Bldg., 7 North Seventh St., St. Louis, Mo.,
for plaintiff. Grove G. Sweet, Assistant United States Attorney, Room
402, Federal Bldg., St. Louis 1, Mo., for defendant.
Memorandum
MEREDITH,
District Judge:
This matter
was submitted to the Court on a stipulation of facts; and the Court has
been fully advised by briefs and oral arguments. After the stipulation
was filed, the defendant filed a motion for leave to correct the trial
record and a motion to dismiss. Defendant's motion for leave to correct
the trial record is granted. 1
Defendant's motion to dismiss is overruled.
Findings
of Fact
The facts
stipulated by the parties and as found by the Court are as follows:
Plaintiff
Machinery Center, Inc., through mistake, issued two separate checks to
the order of Cashin Copper Corporation, which was indebted to the
United States
for unpaid taxes. Plaintiff had a selling agreement with the Mullins
Mines Company. Plaintiff owed to the Mullins Mines Company the proceeds
from the sale of machinery in the amount of $3,103.65. Plaintiff sent
its two checks for a total amount of $3,103.65 to the Cashin Copper
Corporation under the mistaken belief that this company was entitled to
the proceeds from the sale of machinery made by plaintiff for Mullins
Mines Company. Cashin Copper Corporation did not own any of the
equipment and had no claim to any of the proceeds of the sale of such
equipment.
The first
check was dated
July 29, 1958
, in the sum of $1,232.00. The second check was dated
August 27, 1958
, in the sum of $1,871.65. These checks were sent to Cashin Copper
Corporation and were deposited in its account with the First National
Bank in
St. Louis
.
On
September 10, 1958
, the then District Director of Internal Revenue, Ernest Flinn, had a
notice of levy served upon the bank seizing "all property or rights
to property" in the possession of the First National Bank belonging
to the delinquent taxpayer.
At the time
the levy was made the account of Cashin Copper Corporation contained
credits in a total sum of $3,117.26. This was $13.61 more than the
combined total of the two checks received from the plaintiff.
On
September 17, 1958
, upon being served with a notice of final demand, the bank paid over to
Ernest Flinn, the District Director of Internal Revenue at that time,
the sum of $3,117.26, thereby closing out the bank's account of the
taxpayer, Cashin Copper Corporation.
In January,
1959, the plaintiff notified the District Director of Internal Revenue,
defendant's predecessor, that it had inadvertently issued the checks
above mentioned to Cashin Copper Corporation.
Thereafter, on
November 2, 1960, a demand was made by the plaintiff that the District
Director return the sum of $3,103.65 alleging that the money seized by
virtue of the tax levy on the taxpayer's bank account was the property
of the plaintiff and that it had been illegally seized and wrongfully
held.
A similar
demand was made upon the defendant, who took office as District Director
on
February 21, 1960
.
The Cashin
Copper Corporation is now defunct and has been since
January 1, 1959
, when its charter was forfeited.
Plaintiff has
paid the sum of $3,103.65 to Mullin Mines Company, Inc., to whom the
money represented by the two checks was due, and seeks to recover that
amount from the defendant, alleging in its complaint that the seizure of
the funds was illegal, that said funds belonged to the plaintiff, and
alleging further that the defedant continues illegally to retain said
sum of money.
Conclusions
of Law
1. The Court
has jurisdiction of this action under Secs. 1340 and 2463, 28
U. S.
C. A.
Section 1340
provides:
"The
district courts shall have original jurisdiction of any civil action
arising under any act of Congress providing for internal revenue, or
revenue from imports or tonnage, except matters within the jurisdiction
of the
Customs Court
."
Section 2463
provides:
"All
property taken or detained under any revenue law of the
United States
shall not be repleviable, but shall be deemed to be in the custody of
the law and subject only to the orders and decrees of the courts of the
United States
having jurisdiction thereof."
New
Hampshire Fire Insurance Co. v. Scanlon [60-1 USTC ¶9423], 362
U. S.
404, in our view, did not decide the question of jurisdiction in a
plenary action under Sec. 2463, but ruled on the propriety of
adjudication of levied property in summary proceedings. However, compare
Morris v. United States [62-2 USTC ¶9502], 303 F. 2d 533, where
the first circuit suggests that New Hampshire Fire Insurance Co. v.
Scanlon, supra, strongly indicates that the statute "did not
place levied property in the custody of federal courts for general
adjudicatory purposes, whether summary or otherwise."
2. The levy on
the money in question was made by Ernest Flinn, the District Director of
Internal Revenue, pursuant to Secs. 6331 and 6332, Title 26,
U. S.
C. A. The money was detained by defendant Alvin M. Kelley, District
Director of Internal Revenue, after lawful demand by plaintiff. A suit
against the Director for property seized or detained is the normal and
proper remedy. Stuart v. Chinese Chamber of Commerce of Phoenix
[48-2 USTC ¶9315] (C. A. 9, 1948) 168 F. 2d 709.
3. The fact
that the seizure was made by a previous Director of Internal Revenue for
the Eastern District of Missouri does not affect the right of the
plaintiff to substitute the present Director of Internal Revenue since
the suit is brought against the office and not the person of the
Director of Internal Revenue. See Rule 25 of Federal Rules of Civil
Procedure, which reads as follows:
"(d)
Public Officers; Death or Separation from Office.
"(1)
When a public officer is a party to an action in his official capacity
and during its pendency dies, resigns, or otherwise ceases to hold
office, the action does not abate, and his successor is automatically
substituted as a party. Proceedings following the substitution shall be
in the name of the substituted party, but any misnomer not affecting the
substantial rights of the parties shall be disregarded. An order of
substitution may be entered at any time, but the omission to enter such
an order shall not affect the substitution.
"(2)
When a public officer sues or is sued in his official capacity, he may
be described as a party by his official title rather than by name; but
the court may require his name to be added."
4. The money
in this case is identifiable in the bank account of the delinquent
taxpayer Cashin Copper Corporation since at that time there was only
$13.61 more than the total of the two checks received from the
plaintiff. The fact that the District Director of Internal Revenue has
already paid the money into the Treasury of the
United States
is no defense. Stuart v. Chinese Chamber of Commerce of Phoenix,
supra, and First National Bank of Emlenton, Pa. v. United States
[59-1 USTC ¶9329], (C. A. 3, 1959) 265 F. 2d 297. In the latter case, a
suit against the
United States
, the Court specifically suggested that the suit should have been
brought against the District Director of Internal Revenue. The District
Director had seized property on which the plaintiff had a chattel
mortgage. The property had been sold, and the money paid into the United
States Treasury.
5. The
District Director of Internal Revenue or no other arm of the government
of the United States should be so zealous in keeping money or property
which is known to belong to a citizen of this country and which has been
seized and wrongfully held.
Judgment
should be granted to the plaintiff in the sum of $3,103.65 with interest
from the date of
November 2, 1960
, when demand for return of the money was made.
1
Paragraph 6 of the complaint was stipulated to by the parties. This
paragraph contains the sentence: "The checks were deposited in the
Cashin Copper Corporation's account erroneously and never became the
property of that company but always remained plaintiff's property."
(Italics supplied.) As pointed out in the Motion to Correct the Record,
Counsel inadvertently overlooked the last phrase of this sentence when
the stipulation was agreed to. An inference from this language is
possible which would render the defendant's position, on the merits, a
nullity and consequently the motion to correct the record has been filed
and granted.
Sadie F. Chamberlain v. Joseph J.
Conley, Junior, District Director of Internal Revenue
U.
S. District Court, Dist. Conn., Civil Action No. 9959, 6/5/64
[1954 Code Sec. 6323]
Tax lien: Priority: Trust funds held by delinquent taxpayer.--A
jury found that a mother gave money to her son to be held in trust for
her and that such money was among the funds seized by the Government for
the son's delinquent income taxes. Therefore, the mother had a lien upon
the seized money and was entitled to priority over the creditors of the
son, including the Government.
Sidney S.
Heiberger, 348 Orange St., New Haven, Conn., Sidney L. Goldstein, 109
Church St., New Haven, Conn., for plaintiff. Robert C. Zampano, Howard
T. Owens, Jr., Federal Bldg., New Haven, Conn., for defendant.
T. EMMET
CLARIE, District Judge.
[Jury
Charge]
THE COURT:
Ladies and gentlemen of the jury, in this case you have now heard the
evidence presented by the parties, the arguments of the attorneys, and
you are now to hear from the Court the rules of law which lie at the
foundation of the various contentions of the parties; the rules which,
when applied to the facts which you find, will lead to your ultimate
verdict.
*
* *
[Trust Existence]
I think I
should point out to you that the claim of the plaintiff involves what
the law calls a "trust." Now, a trust is a right or interest
in property held by one party for the benefit of another. Thus, in this
case, the plaintiff, Mrs. Chamberlain, is claiming that the $5,100
insurance policy proceeds was held by her son, Frank Chamberlain, for
her benefit. This is what is meant by a "trust."
Now, what must
the plaintiff prove to you in order to establish this legal relationship
termed a "trust"? First, she must prove by a fair
preponderance of the evidence that she did, in fact, transfer or convey,
or hand over, the $5,100 to her son. She must also show that when she so
transferred the money, she did so intending that the son or the receiver
of the money should keep it and protect it for her. In other words, she
must have intended the transfer to be for her benefit, as in comparison
with a gift. If she meant the delivery of the money to be an outright
gift, then she cannot establish her claim in this case. She must have
handed the money over for the purpose of protecting it, or that it be
held for her benefit.
Secondly, she
must prove that upon receiving the money from his mother, Frank
Chamberlain placed it, according to the testimony, in the strong box.
This element, like all others, must be shown to your satisfaction by a
fair preponderance of the evidence.
At this point
I think it is appropriate to explain some of the terms or phrases which
have been used by counsel in this case. You have heard evidence and
argument that the funds were put in Frank Chamberlain's strong box in
which he kept other monies belonging to himself. You also heard
testimony and argument that the monies of Mrs. Chamberlain were
contained in a leather jot-pad folder at the time they were allegedly
placed in the strong box. Whether or not the money was contained there
is a question of fact to be established by your consideration of all the
evidence.
[Commingled
Funds]
But, what if
you find that the money was not individually contained when it was
placed in the strong box? If such is the case, the law says that the
funds have been commingled, or mixed.
By commingling
I mean that the money of Mrs. Chamberlain and the money of her son,
Frank Chamberlain, were so mixed in the strong box that it would not be
possible to say that these particular bills were those of Mrs.
Chamberlain, or those of her son. In such case, if both Mrs.
Chamberlain's and Frank Chamberlain's money was of the same
denomination, then it would be impossible to determine which are the
particular bills of Mrs. Chamberlain and which are the particular bills
of Frank Chamberlain. This is what is meant by commingling.
But, does the
fact that you may find that the two particular funds were commingled
necessarily defeat Mrs. Chamberlain's claim? It does not. Money or cash
or currency is considered by the law to be fungible. By fungible I mean
that the monies or bills of the same denomination are of the same class
or type of thing, and do not have to be dealt with in specie, or
individually.
Thus, if you
find that the funds were commingled in the strong box, the plaintiff
may, nevertheless, prevail, providing she has proved to you the elements
already discussed; namely, that she transferred the money to her son,
Frank, with the understanding that he should take care of it for her,
and that he placed it in the strong box, and in addition, the elements
which I will now consider.
You should
also concern yourselves with the question whether or not during the
period commencing April--remember it was April or May, 1956, when the
money was alleged to have been delivered to the son--to February 13,
1962, when the State Police took possession of the strong box--whether
or not during that period the son depleted or used the funds of his
mother.
[Depletion
of Funds]
It is the rule
that where one has deposited funds and they have been commingled with
others, and the whole fund is at any time depleted, that is used up, the
trust is thereby lost.
Applying this
rule to the instant case, if you find that the plaintiff gave her son
the sum of $5,100 in April of 1956, that he kept the $5,100 in the metal
strong box along with funds of his own--and you further find that the
mingled fund was wholly depleted, used up, at any time prior to the date
of the original seizure of the strong box by the police on February 13,
1962, then you must find that the $5,100 was completely dissipated and
constituted no part of the monies seized by the State Police on February
13, 1962, or subsequently by the Revenue Agents on March 1, 1962.
Furthermore,
in the event that you find that the mingled fund was not wholly depleted
at any time prior to the date of seizure of the strong box by the State
Police, you must determine whether at all times from April 1956 to the
date of seizure in February, that is, February 13, 1962, there were
funds in the strong box which equalled or exceeded the sum of $5,100.
If you
determine or find that funds amounting to less than $5,100 were in the
strong box at any time during the period, then a trust can only be
impressed on said monies taken by the police for a sum no greater than
the lowest intermediate balance of monies in the strong box during said
period from April '56 to February '62.
If you find
the amount of money in the strong box at all times after its originally
being placed there, either alone or in conjunction with other monies of
Frank Chamberlain also kept there, equalled or exceeded the amount of
the trust funds held for her by her son, the beneficiary, Mrs.
Chamberlain is entitled to a lien upon the deposit for the full amount
of the funds originally entrusted for safe-keeping, and was entitled to
a priority over the creditors of the trustee including the defendant,
the United States Government.
The
explanation concerning commingling, and the fact that monies are
considered to be fungible, should also be applied to any commingling
which may have taken place after the seizure of the strong box by the
police. So, just as the commingling by Frank Chamberlain does not of
necessity prevent the plaintiff's claim, the commingling by the police
or any third party, including the Revenue Agents, would not bar her
recovery.
[Commingling
Rule Again Summarized]
Let me
summarize again this rule; Commingling of trust funds with other funds
does not destroy the trust so long as the trust funds can be traced. To
accomplish this it is not necessary for the preservation of a trust that
the trustee keep the exact same bills that were originally given to him,
nor is it necessary, as in this case, that the funds be kept in the same
envelope or leather folder; so long as you do find that said funds were
kept in the strong box, which the testimony has alluded to as Exhibit H,
at the time the State Police originally confiscated the box and took the
funds into their possession. Any commingling or removal of the funds
from the strong box after its removal from Frank Chamberlain, either by
the police or Revenue Agents, would not constitute a commingling or
removal or dispersal of the funds by the trustee.
Mrs.
Chamberlain's interest in the trust property, provided that you find it
can be traced, can be enforced against her son, the trustee, or any
third party, such as the Government, claiming the type of legal interest
which it is claiming in this case.
After you
retire to the juryroom you are to choose a foreman. The verdict has to
be unanimous; all twelve. Otherwise, it is not a verdict.
Verdict
THE CLERK: Mr.
Foreman, has the jury reached a verdict?
THE FOREMAN:
It has.
THE CLERK:
Ladies and gentlemen of the jury, kindly listen to your verdict as it is
received by the Court. Sadie F. Chamberlain versus Joseph J. Conley,
Junior, District Director of Internal Revenue, Civil Action Number 9959.
Plaintiff's verdict. In this case the jury finds the issues in favor of
the plaintiff, and therefor finds for the plaintiff to recover of the
defendant the sum of $2,100.
It is signed
Hyman Jacobs, Foreman.
Ladies and
gentlemen of the jury, is this your verdict, so say you all?
THE JURY: It
is.
THE COURT: The
jury's verdict is accepted and ordered recorded.
Kroblin Refrigerated Xpress, Inc.,
Plaintiff v.
United States of America
, Defendant
U.
S. District Court, No. Dist.
Iowa
, East. Div., No. C 76-2027, 10/25/78
[Code Sec. 3401]
Wages subject to withholding: Employer-employee relationship:
Trucking company and "gypsy chasers".--Certain "gypsy
chasers" were not employees of the taxpayer-trucking company for
purposes of Federal Insurance Contribution Act (FICA) and Federal
Unemployment Tax Act (FUTS) taxes. The "gypsy chasers" were
itinerant individuals who unloaded carcasses ("swinging meat")
from trucks owned by various trucking companies each day. The
"gypsy chasers" were not employees, because they were not
under the of the taxpayer-trucking company, they were not engaged in a
regular, continuing work relationship with the trucking company, and
they were supplied no tools or equipment by the trucking company.
John R.
Walker, Jr., Hugh M. Field,
P. O. Box 2086
,
Waterloo
,
Iowa
50705
, for plaintiff. James Reynolds, United States Attorney, Cedar Rapids,
Iowa 52407, Max H. Lauten, Clinton D. Brown, Department of Justice,
Washington, D. C. 20530, for defendant.
Findings
of Fact, Conclusions of Law and Order
MCMANUS, Chief
Judge:
This action to
recover internal revenue taxes and counterclaim for taxes due was tried
to the court on stipulated facts, depositions and written briefs and
arguments. Judgment for taxpayer and against the government.
The sole issue
to be resolved is whether "lumpers" or "gypsy
chasers" (chasers), paid by taxpayer's truck drivers to unload
"swinging meat" (swinging meat) at various depots owned and
operated by third parties, are taxpayer's employees for purposes of
Federal Insurance Contribution Act (FICA) and Federal Unemployment Tax
Act (FUTA) taxes. They are not.
Findings
of Fact
1. This is an
action for recovery of internal revenue taxes for the year 1969 and
counterclaim for taxes due for the years 1969-1973.
2. Plaintiff
is an
Iowa
corporation with its principal place of business in
Waterloo
,
Iowa
and is a common carrier of specific commodities by motor truck over
irregular routes by authority granted by the Interstate Commerce
Commission.
3. Defendant
is the
United States of America
.
4. Plaintiff
is in the business of hauling refrigerated goods for hire including
unprocessed carcasses hung on hooks called swinging meat from midwestern
slaughter houses to east coast terminals of consignees.
5. Plaintiff
has terminals and sales persons in a variety of locations throughout
most of the
United States
. It does not maintain offices, terminals, agents or employees in each
of the many cities to which cargo is carried.
6. During all
times material chasers were itinerant men who congregated at the
consignee's terminals and were paid varying amounts by plaintiff's
drivers to unload swinging meat. The drivers neither supply equipment,
exercise supervision over the chasers' work nor their number per job.
Cash is the only acceptable form of pay and is divided equally among
them regardless of seniority. Chasers unload for several different
trucking companies each day.
7. The
consignee supplies the chasers a place to work, restroom, locker and
cafeteria facilities, smocks, hats and identification cards and sells
them white gloves. It also controls the order and dock of unloading.
8. Plaintiff
operates under a tariff providing in part:
Except
as otherwise provided in particular rate items, rates applying on
shipments of fresh or frozen meats other than in barrels or boxes apply
only when the shipment is loaded into or onto the truck by the shipper and
unloaded therefrom by the consignee. (emphasis added).
9. Gypsy
chasers are not plaintiff's employees.
Conclusions
of Law
1. This court
has jurisdiction of the parties and subject matter. 28 USC §1346(a).
2. Plaintiff
has proved by a preponderance of the evidence that chasers were not its
employees. Coversely defendant has failed to prove by a preponderance of
the evidence that chasers were plaintiff's employees. 26 USC §§
3121(d), 3306(i) and 3401(d); United States v. Silk, 331 U. S.
704, 714-715 (1947); Wolfe v. United States [78-1 USTC ¶9229],
570 F. 2d 278, 280 (8th Cir. 1978); Avis Rent A Car Systems, Inc. v.
United States [74-2 USTC ¶9725], 503 F. 2d 423, 429-430 (2d Cir.
1974); and Jobbers Warehouse Co., Inc. v. United States, No.
76-1003 (D. S. D. December 1, 1977).
3. Plaintiff
is not liable for FICA and FUTA taxes for the years 1969-1973.
Summary
When viewed in
light of the legal standards defining an employer-employee relationship,
the facts of this case point to one conclusion--the gypsy chasers are
not employees of the plaintiff's company.
As plaintiff
notes, the courts are split as to the obvious problem of categorizing
this group of basically unskilled and transient workers. Although the
tariff would seem to assign responsibility for unloading to the
receiver, plaintiff's course of dealing obligated it to deliver swinging
meat to the consignee's dock, and when gypsy chasers unloaded the meat
they took part in plaintiff's business. However, the preponderance of
the evidence indicates: chasers do not come under control of the
plaintiff (plaintiff has no right to control them, nor does he attempt
to exercise control); they are not engaged in continuing regular, or
permanent relations with plaintiff; nor are they supplied tools or
equipment by plaintiff. Most relevant indicia tend to show that gypsy
chasers are more likely to be independent contractors or employees of
receivers rather than of plaintiff.
Although other
elements of their occupation--lack of entrepreneurial opportunity, lack
of substantial investment in tools or equipment, belief that because the
truck driver pays them, he is an employer--indicate an employer-employee
relationship, the most significant elements in this fact setting show no
such relationship exists. See Lanigan Storage & Van Company v.
United States [68-1 USTC ¶9225], 389 F. 2d 337, 341-342 (6th Cir.
1968); Bonney Motor Express Incorporated v. United States [62-2
USTC ¶9634], 206 F. Supp. 22, 29-30 (E. D. Virginia 1962). 1
It is
therefore
ORDERED
1. Plaintiff
shall take $1,176.77 from defendant.
2. Defendant's
counterclaim dismissed.
October 25, 1978
.
1
Cognizant of the Commissioner of Internal Revenue's rejection of the
principals outlined in Bonney, supra, (Rev. Rul. 63-115, 1963-1
CB 178), this court notes the incredible burden the Service would assign
to companies in businesses similar to plaintiff's.
Gypsy chasers
would not accept payment by check for the obvious reasons that they
feared insufficient funds and could not otherwise readily divide the pay
among themselves. Under these circumstances, requiring an employer to
keep track of withholding for virtually hundreds or even thousands of
transient workers in towns and cities across the country, where the
total wages to any one chaser might be as insignificant as $6.80, would
be absurd. The potential costs to private industry of bookkeeping and
postage alone might amount to substantially more than the government
would gain by such a regulation, particularly where, as here, the
workers for whom withholding would be required, fall into an extremely
low income group and claim that they file regular tax returns.
Collection of withholding at the source is generally an efficient,
equitable and effective means of insuring tax revenue. In the present
case, however, the efficiencies and equities are questionable at best.
The Bonney
court succinctly stated the problem:
Considering
the factual situation as a whole, we agree with Congressman Gearhart
that Congress did not intend for "gypsy chasers" to have
"more employers than a dog has fleas". Not unmindful of the
difficulties presented to the taxing authorities in collecting taxes
from "gypsy chasers", it is nevertheless apparent that this
class of workmen was never intended, according to common law rules, to
have 400 separate employers during each year. 206 F. Supp. at 30.
United States of America, Plaintiff v.
J. Austin White, as Executor of the Estate of Carl L. White, Sr.; J.
Austin White; Elizabeth White; The Eudora Bank, a banking corporation;
Breece-White Manufacturing Co., Inc., a dissolved Arkansas corporation;
D. T. Watkins; Glenn A. Railsback; Joanne White McBride, Individually
and as Guardian of the Person and Estate of Robert Earl McBride, a
minor, Defendants
U.
S. District Court, East.
Dist.
Ark.
,
Pine Bluff
Div., Civil No. PB-64-C-11,
12/15/65
[1954 Code Sec. 6321]
Tax liens: Property subject to lien: Another's property: Bare legal
title v. Equitable ownership.--Government's tax lien did not attach
to certain real property where taxpayer held bare legal title only and
company was the equitable owner. Although title was recorded in name of
taxpayer, he made timely written acknowledgment that the company had
provided the funds for the purchase and was the equitable owner, the
property was carried as an asset on the company's books and the company
paid taxes on and cut timber from the property as its owner.
Sharon
Reynolds, Department of Justice,
Washington
, D. C. 20530, for the plaintiff. J. G. Williamson, Phillip Carroll, 720
W. 3rd St., Little Rock, Ark., W. K. Grubbs, Gordon St., P. O. Box 665,
Eudora, Ark., for defendants.
Findings
of Fact and Conclusions of Law
HENLEY,
District Judge:
The above
entitled cause came on regularly for trial on
November 18, 1965
. The Court having duly considered the evidence, now finds as follows:
Findings
of Fact
1. This suit
was timely filed against Carl L. White, Sr. to collect an income tax
deficiency of $74,134.82 for the year 1951, together with interest
thereon of $12,736.96, which was assessed against Carl L. White, Sr. on
January 31, 1955
. Carl L. White, Sr. died on
October 19, 1965
, and J. Austin White, as Executor of the Estate of Carl L. White, Sr.,
Deceased, was substituted for Carl L. White, Sr. as defendant on
November 18, 1965
. The attorney for the Estate of Carl L. White, Sr. has stipulated that
judgment may be entered against J. Austin White, as Executor of the
Estate of Carl L. White, Sr. for the amount of the 1951 income tax
deficiency with interest (less credits for payments) in the aggregate
amount of $135,209.98 as of November 18, 1965, together with legal
interest thereon until paid.
2. On
February 10, 1955
, Carl L. White, Sr. conveyed by Quitclaim Deed to The Breece-White
Manufacturing Company his interest in the following lands located in
Chicot County
,
Arkansas
, to-wit:
The
South Half of the Northeast Quarter (S1/2NE1/4), the North Half of the
Northeast Quarter (N 1/2 NE 1/4), and the North Half of the Southeast
Quarter (N 1/2 SE 1/4) of Section 17;
The
West Half of the Northeast Quarter (W 1/2 NE 1/4), the West Half of the
Southeast Quarter (W 1/2 SE 1/4), and the West Half (W1/2) of Section
18;
The
Southwest Quarter of the Southeast Quarter (SW 1/4 SE 1/4) of Section
19;
The
South Half of the North Half (S 1/2 N 1/2) of Section 23;
The
East Half of the Northwest Quarter (E 1/2 NW 1/4) of Section 26;
The
Northeast Quarter (NE1/4) of Section 27;
All
in Township 18 South, Range 3 West, containing 1234 acres.
3. The above
described 1234 acres of land had been purchased by The Breece-White
Manufacturing Company in January, 1944 with funds of The Breece-White
Manufacturing Company. Naked legal title to the lands was placed in the
name of Carl L. White, Sr. on the advice of the then attorney for the
Company. On
January 15, 1944
, Carl L. White, Sr. executed a written statement acknowledging that The
Breece-White Manufacturing Company had provided the money for the
purchase of the 1234 acres of land and was the equitable owner of the
land. From the time the land was purchased in January, 1944 until its
disposition by The Breece-White Manufacturing Company in 1960 and 1962,
the 1234 acres of land was carried on the books of The Breece-White
Manufacturing Company as an asset of the Company. The Company paid the
taxes on the land and cut the timber from the land as the owner of the
land.
4. The
Breece-White Manufacturing Company was the equitable owner of the 1234
acres of land in question from January, 1944 until its disposition of
the land in 1960 and 1962. Carl L. White, Sr. had only naked legal title
to the 1234 acres of land on
January 31, 1955
, the date the 1951 income tax deficiency was assessed against him. The
conveyance by Carl L. White, Sr. of the 1234 acres of land on
February 10, 1955
to The Breece-White Manufacturing Company was not made with an intent to
defraud the
United States
.
5. On
April 11, 1960
, The Breece-White Manufacturing Company sold 80 acres of the 1234 acres
of land in question to R. A. Lingo and Ella Lingo for $4,000.00, which
money was paid to The Breece-White Manufacturing Company and used in its
business. In April, 1962, The Breece-White Manufacturing Company
conveyed the remaining 1154 acres of the 1234 acres of land in question
to its stockholders in exchange for their stock in the complete
liquidation of The Breece-White Manufacturing Company.
Conclusions
of Law
1. Plaintiff
is entitled to judgment against J. Austin White, as Executor of the
Estate of Carl L. White, Sr. in the amount of $135,209.98, together with
interest thereon from
November 18, 1965
at the rate of six percent (6%) per annum until paid.
2. Plaintiff
has at no time had a lien or interest in the 1234 acres of land in
question by reason of any income tax deficiency assessed against Carl L.
White, Sr. with respect to 1951.
3. Plaintiff
is not entitled to any judgment against any of the defendant other than
J. Austin White, as Executor of the Estate of Carl L. White, Sr., and
plaintiff's complaint as to those defendants should be dismissed with
prejudice.
Let judgment
be entered accordingly.
United States of America
, Plaintiff v. William Johnson, June Johnson and Violet McAfee, et
al., Defendants
U.
S. District Court,
Dist.
Ariz.
, No. Civ.-3671-Phx., 200 FSupp 589, 12/18/61
[1954 Code Sec. 6321]
Tax liens: Property the subject of an oral trust.--Taxpayer's
interest in certain real property which his mother had conveyed to him
in 1955 upon his oral promise to reconvey and for his use for security
purposes only was not "property" or a "right in
property" upon which a government tax lien could attach. The 1958
reconveyance which was made after the notice and recordation of
these tax liens did not affect the rights of the government, but did
serve to execute the oral trust, thus making parol evidence admissible.
Arthur Ross,
Assistant United States Attorney,
Phoenix
,
Ariz.
, for plaintiff. Shelley and Johnson,
Mesa
,
Ariz.
, for defendants.
Opinion
Granting Motion of the Defendant, Violet McAfee, for Summary Judgment
DAVIS,
District Judge:
This is an
action by the United States of America, under 26 USCA 7401 and 7403 and
28 USCA 1340 and 1345, seeking a money judgment against the defendants,
William Johnson and June Johnson, his wife, for certain unpaid taxes,
and the enforcement of a lien for such taxes against certain real
property claimed by the defendant, Violet McAfee (the mother of the
defendant, William Johnson).
The Johnsons
defaulted, but the defendant McAfee appeared, filing a verified answer
and counter-claim alleging that she was the true owner of the real
property described, and praying that the plaintiff's lien be declared of
no force or effect on said property.
[Defendant's
Motion]
Thereafter,
the defendant McAfee filed a motion for summary judgment accompanied by
an affidavit setting forth facts in support of her position.
The attorneys
for both parties stipulated that the Court could consider the
depositions of Violet McAfee and William Johnson in determining the
motion for summary judgment.
The verified
counter-claim of Violet McAfee, together with the affidavit executed by
her in support of her motion for summary judgment, sets forth facts of
an evidentiary nature, and which, if presented upon a formal hearing,
are sufficient to constitute basis for determination in her behalf.
Further, they are all supported by the depositions of Violet McAfee and
William Johnson. These allegations of the defendant McAfee are not
controverted by verified pleadings or counter-affidavits of the
plaintiff.
[No
Issue of Fact]
For the
purpose of determining whether any issue of fact exists which would
prevent the granting of a motion for summary judgment, the facts set out
in the moving party's affidavit showing that she is entitled to judgment
must be accepted as true, when not met by counter-affidavits or
testimony. The status of the parties is covered quite accurately in
Barron & Holtzff, §1235, pp. 146, 147 and 148 as follows:
"*
* * In other words the opposing party must show a plausible ground for
his claim or defense. * * * The mere denial of the moving party's
contentions, without showing any facts admissible in evidence, raises no
issue of fact. The opposing party must show how he will support his
contentions that issues of fact are present. But he need not submit all
his evidence and it is sufficient if he shows that he has evidence of a
substantial nature, as distinguished from legal conclusions, to dispute
that of the moving party on material factual issues."
The record
contains nothing from the plaintiff in this respect. No issue of fact
being raised, the motion for summary judgment may properly be
considered.
Facts
[Ownership of the Property]
The affidavit
of Violet McAfee and her deposition and the deposition of William
Johnson show: That she owned the real property in question prior to the
year 1955; the transfer of said property to her son, William, on June 1,
1955, subject to a real estate mortgage to State Mutual Savings &
Loan for $2,781.79; the execution of the new mortgage to First Federal
Savings & Loan Association for $6,295.00, used to pay off the State
Mutual mortgage, and the balance of which was kept by her son, William
Johnson; her continuous occupancy of the premises during the period in
question; that her son, William Johnson, resided in Virginia and in Las
Vegas, Nevada, and did not occupy the property; that she did not pay
rent to her son; that she paid the proportion of monthly payments to
First Federal attributable to the funds used to pay off the State Mutual
mortgage, and on occasion paid the entire monthly payments; that she
received all the rent from the small house on the premises; that she
received nothing for the conveyance to her son, except his promise to
recovey after using the property as security for the loan from First
Federal; that she paid all the taxes while title was in her son; that
upon the death of her second husband her son reconveyed the property to
her promptly at her request; that she requested the reconveyance in
order to file for her widow's tax exemption; and that she was unaware of
the plaintiff's lien when this was done.
[Significant
Dates]
The deed from
Violet McAfee to her son was recorded
June 1, 1955
. The mortgage to First Federal Savings & Loan Association was
recorded on
July 17, 1955
. The assessments and notices of tax liens were made in May and July of
1957; and recorded
September 11, 1957
, in the office of the
County
Recorder
of
Maricopa County
,
Arizona
, being the county in which the real estate involved in the controversy
was located. The reconveyance of the property from William Johnson to
Violet McAfee was recorded
April 30, 1958
. The complaint was filed
May 19, 1961
.
[Lien
Provisions]
A federal tax
lien attaches to all property and rights to property belonging to the
taxpayer, whether real or personal. 26 USCA §6321.
The rights of
plaintiff under its lien are to be established as of the date on which
the assessments were made or the lien recorded, namely, in May, July and
September 1957. The subsequent reconveyance of the property from William
Johnson to the defendant McAfee on
April 30, 1958
could not operate to change the rights of the plaintiff as they existed
prior to that conveyance.
[Fee
v. Oral Trust]
The primary
question to be determined is whether the interest of William Johnson in
the realty in 1957 is "property" or a "right in
property" upon which the plaintiff's lien could attach and become
prior and superior to the interest of Violet McAfee in such property.
It is the
contention of Violet McAfee that William Johnson held bare legal title
to the property, with the equitable interest at all times held by him in
trust for her benefit. Plaintiff disputes this, claiming that such a
trust relationship cannot be shown by parol evidence. In support of this
position, plaintiff cites Rogers v. Greer, 70 Ariz. 264, 219 P.
2d 760; Wright v. Young, 20
Ariz.
46, 176 P. 583. The
Arizona
decisions are also clear that to establish an express trust in reality
there must be evidence by some writing. Solomon v. Solomon, 62
Ariz.
311, 157 P. 2d 605. Murillo v. Hernandez, 281 P. 2d 786. This
line of cases, however, involves controversies between the purported
trustee and purported beneficiary (or claimants under one or the other),
in an attempt to establish the existence of a trust. McAfee contends
that here there has been a performance of the trust which takes the
question out of the statute of frauds, and out of the rule with respect
to parol evidence. Stewart v. Damron, 63
Ariz.
158, 160 P. 2d 321.
[Parol
Evidence Admissible]
We think this
is correct and that the instant case is governed by Parker v. Gentry,
66 Ariz. 189, 185 P. 2d 767, where the Arizona Court held that oral
testimony is admissible to establish that an express trust once existed,
and that at the time of filing the action the trust has been fully
executed and performed, and that nothing remains for the trustee to do.
It is clear
that the legal title showed of record in William Johnson on
September 11, 1957
, when the tax lien was recorded, and that William Johnson did not
reconvey the property to Violet McAfee until
April 30, 1958
.
The plaintiff
has emphasized that the only evidence to be made available is from the
parties interested in defeating the government's claim, but there is
nothing inherently improbable in the testimony of the defendants to the
effect that a mother transferred legal title to the property in question
to her son to enable him to execute a real estate mortgage and borrow
money, with the understanding that the property was to be used for that
purpose only, and that it was to be reconveyed to the mother by the son
after the mortgage loan transaction was completed. The plaintiff has not
indicated it has any evidence to the contrary.
[Similar
Case]
The
circumstances of this case are strikingly similar to Kingsbury v.
Christy, 21 Ariz. 559, 192 P. 2d 1114 (1920) where Christy tried to
set aside a conveyance from Mrs. West to her son-in-law, Kingsbury,
claiming it to have been made in fraud of creditors of Mrs. West.
Testimony established the property was originally Kingsbury's; had been
transferred to Mrs. West by him for special limited purposes, and upon
her agreement to retransfer it to Kingsbury whenever requested. Such
retransfer was attacked by the creditors of Mrs. West. The Court said:
"The
conveyances [from Kingsbury to Mrs. West] being without consideration, a
resulting trust was created, and the superior right to the lots in
question remained in the defendant Kingsbury.
10 Am.
& Eng. Law, pp. 4, 5, and cases there cited. Such being the case,
the lots did not belong to the defendant West, and it was no fraud on
her creditors for her to reconvey the legal title to the rightful owner.
"The
plaintiff could not complain that he was injured by the transfer because
he had no right to take the property of the defendant Kingsbury to
satisfy his judgment against the defendant West."
[Holding]
It is the
opinion of the Court that at the time the federal lien was filed of
record the property described as the East 150 feet of Lot Thirteen (13)
JOHNSON ADDITION, according to the plat of record in the office of the
Maricopa County Recorder in Book 58 of Maps, page 17, located in
Maricopa County, Arizona, was neither "property" or "a
right in property" of the taxpayer, William Johnson; that the
plaintiff's lien is of no force and effect with respect thereto; and
that the defendant, Violet McAfee, is entitled to relief sought in her
counter-claim.
Defendant is
directed to prepare and present a formal written judgment in conformity
herewith, and providing with respect to the parties in this action that
Violet McAfee is the owner of the premises in question, free and clear
of any lien of plaintiff, subject only to the lien of the mortgage of
First Federal Savings & Loan Association.
Thomas J. Hobson and Alice M. Hobson,
Plaintiffs v.
United States of America
, Defendant
U.
S. District Court, East. Dist. of
Mich.
, So. Div., No. 1860, 168 FSupp 117,
9/2/58
Lien for taxes: Another's property: Action to quiet title.--A
delinquent taxpayer acted only as agent in the purchase of two lots for
plaintiffs, who instituted this action to quiet title to the lots. The
taxpayer never acquired more than a bare legal title and was never more
than a nominal owner of the lots. The lots are not subject to the tax
liens, therefore, since the rights of the Government when attempting to
establish its lien to property of a delinquent taxpayer are never better
than those which the taxpayer had.
Winegarden and
Booth,
Flint
,
Mich.
, Donn D. Parker,
Flint
,
Mich.
, for plaintiff. Fred W. Kaess, U. S. Attorney, Elmer L. Pfeifle, Jr.,
Assistant U. S. Attorney, Detroit, Mich., for defendant.
Findings
of Fact and Conclusions of Law
Findings of Fact
LEDERLE, Chief
Judge:
1. This is an
action to quiet title wherein the defendant,
United States
, has filed tax liens against the property.
2. Plaintiffs
commenced this action in the Circuit Court for the County of Genesee,
Michigan. It was properly removed to this court pursuant to 28
U. S.
C. 1441, et seq.
3. In May
1957, Thomas J. Hobson and Frank Jackson entered into a verbal agreement
with Melvin P. House whereby House would secure title to Lots 461 and
466 of Eastlawn Subdivision, City of
Flint
,
Genesee County
,
Michigan
. The purchase price was to be $1,000, and it was to be paid from funds
furnished by Hobson and Jackson. House was to receive $100 for his
services.
4. Hobson gave
House $20, which House gave to the owner, Marion Glaspell McLaughlin, as
deposit on the purchase of the two lots.
5. On
May 23, 1957
,
Jackson
put up $500 and Hobson put up $480 and purchased a bank money order for
$980 payable to their attorney, William A. Neithercut. The attorney was
instructed to examine the title and, if satisfied, to endorse and
deliver the bank money order to Maurine Jones, attorney for the seller,
Marion McLaughlin.
6. On
June 10, 1957
, Melvin and Jennie House executed a warranty deed to the lots in
question, naming Thomas J. Hobson and Alice M. Hobson as grantees. At
that time, House was paid the $100 fee.
7. Shortly
thereafter, between June 10 and
June 13, 1957
, Marion McLaughlin executed a quit claim deed of the two lots to Melvin
and Jennie House as grantees. This deed was given to William A.
Neithercut, who endorsed the bank money order to Maurine Jones.
Neithercut then delivered this deed to the Hobsons.
8. On
June 24, 1957
, plaintiffs secured a new and corrected deed from Melvin and Jennie
House.
9. On
June 28, 1957
, the deed from McLaughlin to the Houses was recorded along with the
June 24, 1957
, deed from the Houses to the hobsons. The
June 10, 1957
, deed from the Houses to the Hobsons was never recorded because of
error.
10. On
August 6, 1957
, Thomas Hobson repaid Frank Jackson the $500.
11. There had
been assessed against Melvin P. House and Jennie House income and
withholding taxes according to the list hereinafter set forth.
Tax Tax Lien Amount Assessment Recording
Period Number Outstanding Date Dates of Liens
INCOME (M. & J. House)
1953 .......................... F-9 $ 566.66
6-9-54
GC
4-28-55
BC
4-28-55
1954 .......................... F-147 1,157.73
9-20-55
GC
1-19-56
BC
1-12-56
WITHHOLDING (Melvin House)
4/Q/1955 ...................... F-367 629.74
3-30-56
GC
2-13-57
4/Q/1955 ...................... F-754 217.72
3-8-57
GC
2-10-58
2/Q/1956 ...................... F-367 550.21
9-21-56
GC
2-13-57
3/Q/1956 ...................... F-396 458.33
12-21-56
GC
3-15-57
4/Q/1956 ...................... F-754 531.01
4-8-57
GC
2-10-58
After the
assessments as set forth in the above, the liens which arose at the date
of assessment were recorded against all property and rights to property
belonging to the said Melvin P. House and Jennie House. Said list shows
the tax periods, the nature of the taxes, tax lien numbers, the amount
of taxes outstanding, the dates of assessments by the Director of
Internal Revenue, and the dates and places the notices of tax liens were
filed. The letters "GC" appearing in the list indicate that
the notice of tax lien was filed with the Register of Deeds for
Genesee
County
at
Flint
,
Michigan
, and the letters "BC" indicate that the notice of tax lien
was filed with the Clerk of the United States District Court at
Bay City
,
Michigan
.
After receipt
of the assessment lists, the Director of Internal Revenue duly demanded
payment of said taxes, but said taxpayers Melvin P. House and Jennie
House paid a portion of said taxes. On
July 17, 1958
, the taxpayer still owed the
United States
the amount indicated.
12. The
plaintiffs first actual notice of the tax liens occurred when they
applied to a local bank for construction money mortgages and the titles
were re-examined.
Conclusions
of Law
1. Melvin P.
House acted as agent for Thomas J. Hobson.
2. Melvin P.
House and Jennie House never acquired more than a bare legal title to
the lots in question, 42 ALR 10, 27 ALR 2nd 1285.
3. "The
rights of the Government when attempting to establish its lien to
property of a delinquent taxpayer are, however, never better than those
which the taxpayer had," Mertens Law of Federal Income Taxation, 9
Mertens Section 54.52.
4. Plaintiffs
are entitled to a decree determining that Lots 461 and 466 of Eastlawn
Subdivision, City of
Flint
,
Genesee County
,
Michigan
, are not subject to the liens of the United States Government.
N. O. Geisinger, Receiver of R-H-R
Construction Company, Plaintiff v. The East Ohio Gas Company, et al.,
Defendants
Ohio
Court of Common Pleas, Tuscarawas County, No. 36207, 10/22/63
[1954 Code Sec. 6323]
Tax liens: Priority of creditors: State law: Assignment and
mechanic's liens.--A bank which was the assignee of accounts
receivable earned by the taxpayer contractor for construction work had
priority over the Government's liens for unpaid taxes as to all moneys
earned by the taxpayer and assigned prior to the filing date of the
Government's tax liens. Also, the Government's tax lien did not apply to
a fund created specially by the taxpayer for the purpose of guaranteeing
that all mechanic's liens would be paid
Richard M.
Hanhart, Ohio Savings & Trust Bldg., New Philadelphia, Ohio, for N.
O. Geisinger, plaintiff. John L. Woodard, Wantz Bldg., Public Square,
Dover, Ohio, for Mechancis Lien Holders; Francis C. Fitzpatrick, 109
Court St., New Philadelphia, Ohio, for Harry Mushrush d/b/a New Phila
Welding; Lawrence Burns, Jr., Coshocton National Bank Bldg., Coshocton,
Ohio, for The National Bank of Dover; Stanley F. Campbell, 1717 East
Ninth St., Cleveland, Ohio, for The East Ohio Gas Co., defendants.
LAMNECK,
District Judge:
This action
was instituted by the plaintiff as receiver for the R-H-R Construction
Company, hereinafter referred to at times as the "Contractor"
in which he alleges that one of the defendants, The East Ohio Gas
Company, hereinafter referred to at times as "The Gas Company"
has money in its hands due the R-H-R Construction Company for work
performed by the R-H-R Construction Company for the East Ohio Gas
Company under several written contracts for pipe line construction.
It is admitted
by all parties to this action that the amount due and payable from the
East Ohio Gas Company as to the R-H-R Construction Co. for work in
progress as of
April 28, 1960
was $9,177.38. The receiver asks that all parties claiming a lien
against said fund be required to set forth their claims, that said liens
be marshalled and their priority be determined, and for other equitable
relief.
The R-H-R
Construction Co. was dissolved on
June 15, 1960
.
All of the
contracts of the R-H-R Construction Co. with the East Ohio Gas Company
were made effective by the acceptance of a proposal of the contractor.
The agreements provided that the work to be done would be "in
accordance with the Company's General Contract Specifications for
Construction and Removal of Gas Lines--Standard Operating Procedure No.
2-M" which was made a part of the contracts.
Section 9 of
said specifications reads as follows:--
"9--PAYMENT
FOR WORK
The
Company will pay the Contractor in the following manner, in accordance
with unit prices bid:--The Contractor shall present itemized bills for
the completed work in accordance with location and contract, line,
project, and job order numbers as set forth in the unit price bid sheet.
Upon receipt of the Contractor's bill and the approval of the Company's
engineer, the Company shall pay the full amount of the bill, less a 10%
retainer, herein specified, provided the Contractor has complied, in all
respects, with the Mechanic's Lien Laws of Ohio, and furnished affidavit
in compliance with said laws to the satisfaction of the Company."
Section 16 of
said specifications reads as follows:--
16
RETAINER
A
retainer of 10 percent of all moneys due the Contractor for the work
provided to be performed by him in these Specifications and in the
contract of which these Specifications are a part may be held by the
Company until not later than ninety days after the completion of all
such work in accordance with said contract, including all final clean-up
and replacement work."
Section 17 of
said specifications contains the following provision:
"If
the contractor fails to maintain or complete such work as aforesaid,
such maintenance or completion may be done by the Company and the costs
thereof deducted from the retainer held by it hereunder."
The Director
of Internal Revenue claims a preferred lien against said fund for income
tax liabilities as follows:--
1. For the
fourth quarter of 1959, in the amount of $12,770.32, assessed on
March 18, 1960
.
2. Depository
Receipts penalty for the first quarter of 1960 in the amount of $42.18
assessed on
September 16, 1960
.
3. Withheld
income tax liabilities for the second quarter of 1960 in the amount of
$31.38, assessed on
September 16, 1960
.
Notice of the
March 18, 1960
assessment was filed with the Recorder of Tuscarawas County, Ohio on
April 22, 1960
, and the
August 12, 1960
and the
September 16, 1960
assessment notices were likewise filed on
October 27, 1960
.
Notice of a
Tax Levy against the R-H-R Construction Co. in the amount of $12,770.32
was filed by the Director of Internal Revenue with the East Ohio Gas
Company on
April 22, 1960
. The total amount due the Government for income tax, interest and
penalties from the R-H-R Construction Company amounts to $12,843.88 plus
interest.
The National
Bank of
Dover
entered into an agreement with R-H-R Construction Company on
June 5, 1959
under which said bank agreed to advance moneys to the said R-H-R
Construction Company to finance its construction work as provided by
sections 1325.01 and 1325.04 of the Revised Code of Ohio then in effect.
Said agreement
and notice reads as follows:
"NOTICE
OF ASSIGNMENT OF ACCOUNTS RECEIVABLE For filing with
County
Recorder
,
Tuscarawas County
,
Ohio
.
June 5, 1959
The
undersigned assignor is assigning contemporaneously herewith or intends
to assign one or more accounts receivable to the undersigned assignee.
R-H-R
Construction Company
(Signed) By
William A. Hawk, Pres.
10471/2 NOrth Tuscarawas Ave.
--Assignor
Dover
,
Ohio
THE NATIONAL BANK OF
DOVER
,
DOVER
, O.
(Signed) By E.
L. Bowers Asst. Vice Pres.
301 West 3rd Street
Assignee
Dover
,
Ohio
"
The said bank
loaned money under said contract to the R-H-R Construction Co. in the
total sum of $53,150.00 represented by 26 different notes beginning
November 23, 1959 and ending February 10, 1960. The first note amounted
to $720.00 and the last note was of the face amount of $1550.00. On the
date each note was executed, the R-H-R Construction sent a notice to the
East Ohio Gas Co. in which it was stated that the moneys earned for work
performed up to and including the date of the note had been assigned to
the National Bank of
Dover
. The last notice is dated
February 10, 1960
. There was no assignment after that date.
The total
claim of the New Philadelphia Welding, Inc. against the R-H-R
Construction Co. amounts to $1521.43, and is represented by eleven
invoices, the first for the week ending November 23, 1959 and the last
for the week ending May 2, 1960.
The New
Philadelphia Welding, Inc. executed a Mechanic's Lien for said labor
against the East Ohio Gas Co. dated
June 17, 1960
for $1521.43, which was filed in the Recorder's Office of Tuscarawas
County, Ohio on
June 18, 1960
, and in the Recorder's Office of Stark County, Ohio on
June 20, 1960
. The East Ohio Gas Co. received notice of this Mechanic's Lien on
May 5, 1960
. The lien has not been reduced to judgment.
Of this claim
of New Philadelphia Welding, Inc., $458.99 is for labor performed
subsequent to
March 18, 1960
, the date of the first aforesaid assessment of the Director of Internal
Revenue against the R-H-R Construction Co.
On various
dates during the month of June 1960, the East Ohio Gas Co. received
notice of Mechanic's Liens of Kenneth Lanzer and 14 others for labor
performed for the R-H-R Construction Co. on lines of the East Ohio Gas
Company aggregating $2,525.63. All of these were filed in the Recorder's
Office of Tuscarawas County, Ohio as provided by law. These various
claims represented labor performed subsequent to the assessment of the
Director of Internal Revenue dated
March 18, 1960
. These liens have not been reduced to judgment.
Summarizing,
the claims of the various parties against the fund amounting to
$9,177.39 are as follows:
Director of Internal Revenue ...... $12,843.88
National Bank of
Dover
............ 53,150.00
New Philadelphia
Welding, Inc. .... 1,521.43
Kenneth Lanzer and 14 others ...... 2,525.63
Under Section
1325.04 of the Revised Code in effect from
September 7, 1957
to
July 1, 1962
, an assignee of a written assignment "becomes protected at the
time the assignee, having previously or contemporaneously filed a notice
of assignment, takes an assignment during the effective period of the
notice." This indicates that a valid assignment cannot be made of
future accounts not yet due, but is only effective to amounts earned at
the time an assignment is taken.
A protected
assignee of accounts receivable has the right to the proceeds of such
accounts superior to the rights of others who thereafter acquired an
interest in such accounts but not as to judicial, tax or other liens in
effect prior to the assignment, or to liens by way of a pledge, chattel
mortgage, trust receipt or other common law or statutory liens having a
priority over the assignee of accounts receivable.
Under Section
1325.01 of the Revised Code in effect from September 7, 1957 to July 1,
1962, an "account receivable" includes "a right to the
payment of money for the performance of work, or the rendering of
services . . ., and a right to payment which may arise under a contract existing
at the time of such right . . ." with the exception that such
assignment, among other things which do not apply in this case, "is
subject to special statutory provisions of the state or of the federal
government."
Under Section
1311.15 of the Revised Code, "an assignment or transfer by the
principal contractor or subcontractor, to subject or encumber his
interest in such contract, is subject to the claims of every laborer,
mechanic, subcontractor, or materialman, who furnished any labor,
machinery, material or fuel towards the construction, excavation,
alternation, removal or improvement as designated in sections 1311.01 to
1311.68, inclusive of the Revised Code."
The foregoing
provisions of the Revised Code makes the assignment of Accounts
Receivable by R-H-R Construction Company under its contract with the
East Ohio Gas Co. to the National Bank of Dover, subject to the rights
of employes and any subcontractor who performed labor under said
contract whose liens have been properly perfected. (See Methodist
Church v. Gorman Bros. 19 O. C. C. 10, 10 O. C. D. 103, 65 Ohio St.
613; 36 Ohio Jur. (2d) Page 552, Section 100)
Therefore
under State Law, the assignment to the National Bank of Dover of
Accounts Receivable set forth in this case is subject to the Mechanic's
Lien of the New Philadelphia Welding, Inc. amounting to $1521.43 and of
Kenneth Lanzer and 14 others aggregating $2525.63.
State law
controls the legal interest of a taxpayer in property sought to be
reached by a federal tax lien and federal law determines the priority of
competing liens asserted against the property. (See Aquilino v.
United States [60-2 USTC ¶9538], 363
U. S.
509, 80 Sup.
Ct.
1277, 4 L. Ed. (2d) 1365.)
Under Section
6321 of the Internal Revenue Code of 1954, 26
U. S.
C. A., the
United States
has a tax lien upon "all property and rights to property" of
the taxpayer. By the provisions of Section 6322 of the U. S. Revenue
Code, this lien arises at the time of the assessment, but under Section
6323 of the U. S. Revenue Code, the lien is not valid "as against
any mortgagee, pledgee, purchaser, or judgment creditor"
until notice thereof shall have been filed in the Recorder's Office.
In United
States v. L. R. Foy Construction Co. [62-1 USTC ¶9325], 300 Fed.
(2d) 207, it was held that a bank to which a subcontractor assigned sums
due under such subcontract, to secure an existing obligation and further
advances is a "mortgagee" within the protection of Section
6323 of the federal tax lien statutes.
This means
that all moneys advanced by a bank to a taxpayer under an assignment of
accounts receivable contract to secure the same as provided by Sections
1325.01 et seq. of the Revised Code, in effect during the time covered
in this controversy, prior to the filing of an income tax lien against
the taxpayer in the Recorder's office would have a priority over the
lien of the U. S. Government for such income taxes, as to all moneys
earned by the taxpayer and assigned prior to the filing date of the
income tax lien.
On the dates
the federal tax lien notices in this case were filed in the Recorder's
Office of Tuscarawas County, Ohio, the taxpayer owed the National Bank
of
Dover
under its assignment of accounts receivable contract the sum of
$53,150.00. The claim of the Bank for this amount plus interest has a
priority over that of the
United States
for income taxes against the sums earned by the taxpayer from the East
Ohio Gas Co. up to and including
February 10, 1960
, the date of the last assignment.
In United
States of America v. White Bear Brewing Co., Inc. et al. [56-1 USTC
¶9440], 350 U. S. 1010, 100 L. Ed. 871, it was held "a federal tax
lien has priority over a statutory mechanic's lien not yet reduced to
judgment, even though the mechanic's lien was specific prior to the time
perfected in the sense that everything possible under state law has been
done to make it choate, and was being enforced before the federal tax
lien arose." In the case the liens were against the property of the
taxpayer, and involved priority of liens.
As to the
claim of the Government and the Mechanic's Liens in the instant case, a
question of priority of liens is not presented but it is a question as
to whether the Government has a lien for income taxes against all or any
part of the fund in question, and therefore United States v. White
Bear Brewing Co., supra, does not apply.
The mechanic's
liens filed in this case are effective against the property of the Gas
Company on which the contractor did his work. Under its contracts with
the contractor, the Gas Company had a right to withhold 10% of the sums
due and payable to the contractor to guarantee that all mechanic's liens
would be paid. If this fund were paid to the Government for income
taxes, the mechanic's liens in question would still be effective against
the property of the Gas Company on which work was done.
The tax lien
of the Federal Government does not attach to a fund created by the
taxpayer, if the taxpayer has no right to receive such fund or a portion
thereof at the time such lien attaches. (See Scott v. Church 70
N. W. (2d) 326.)
State law
determines whether a taxpayer has an interest in such a fund at the time
the tax lien becomes effective. (See Aquilino v. United States
[60-2 USTC ¶9538], 363
U. S.
509, 80 Sup.
Ct.
1277, 4 L. Ed. (2d) 1365).
In the instant
case, the Gas Company reserved the right to withhold certain payments
from the contractor until the contractor "has complied in all
respects with the Mechanic's Lien Laws of Ohio, and furnished affidavit
in compliance with said laws to the satisfaction of the Company."
This the contractor did not do, and therefore the taxpayer has no
interest in such part of the retainages necessary to liquidate the
mechanic's liens in question which amount to $4047.06.
It will
therefore be ordered that said fund of $9,177.38 be paid by the East
Ohio Gas Company to the Clerk of Courts of this county to be distributed
by him in the following priority, as follows:
1. The costs of this proceeding taxed
at $--.
2. The New Phila. Welding, Inc. ........... $1,521.43
3. Kenneth Lanzer ......................... 346.15
4. Ira Ross ............................... 87.00
5. Robert Davis ........................... 108.50
6. Charles H. Bihlman ..................... 202.00
7. Henry Shull ............................ 320.63
8. Robert Harrington ...................... $ 53.10
9. Walter Harrington ...................... 236.25
10. Richard D. Schie ...................... 194.25
11. Russell Hawk .......................... 200.00
12. Albert Dumermuth ...................... 65.70
13. Ralph Eichel .......................... 52.32
14. Loma Van Natter ....................... 181.65
15. Robert E. Page ........................ 85.60
16. Homer McDade .......................... 170.93
17. Edward Carbary ........................ 221.55
18. The
National Bank of Dover any sum or part thereof due it on notes of the
contractor secured by a valid assignment for work performed by the
contractor for the East Ohio Gas Company up to and including February
10, 1960, if any.
19. To the
Government of the United States the balance of said fund, if any.
Exception
noted.
C. C. Utter, Plaintiff, v. C. W.
Moore, Hooley, Perselay, Butler & Kelly, Trustees; and
United States of America
, Defendants
U.
S. District Court,
Dist.
Nev.
, Civil Action No. R-2653, 7/10/73
[Code Sec. 6321]
Lien for taxes: Another's property: Brokerage agreement.--Because
a fiduciary relationship existed between two brokers to divide a
commission, and the agreement as to the amount of the partner's share
was made prior to the assessment of taxes which the other broker owed,
the partner was entitled to the full amount of the agreed share of the
commission.
Stewart &
Horton, 100 N.
Arlington
,
Reno
,
Nev.
, for plaintiff. Joseph L. Ward, United States Attorney, Las Vegas,
Nev., Woodburn, Forman, Wedge, Blakey, Folsum & Hug, 16th Floor,
First Nat'l Bank Bldg., One E.
First St.
,
Reno
,
Nev.
, for defendants.
Findings
of Fact, Conclusions of Law and Judgment
THOMPSON,
District Judge:
The above
entitled action came on for trial before the Court on
June 25, 1973
, a jury having been waived. Plaintiff was represented by Stewart &
Horton, Ltd., the
United States of America
by the United States Attorney and the remaining defendants by Woodburn,
Forman, Wedge, Blakey, Folsum & Hug. Testimony was taken, evidence
introduced, the matter thereafter argued and submitted to the Court for
decision.
Findings
of Fact
The Court
finds as findings of fact:
1. That at all
times material hereto plaintiff Utter and defendant Moore were real
estate brokers licensed as such in and by the State of
Nevada
.
2. That prior
to
November 6, 1970
Monitor Livestock Company, a corporation, and the stockholders of the
corporation gave
Moore
a listing to sell the assets of the corporation or the stock in the
corporation for a commission of 10% of the sales price received.
3. That
thereafter
Moore
requested Utter to cooperate with
Moore
in locating a buyer and making the sale.
4. That at all
times material hereto it was the custom among ranch real estate brokers
in northern
Nevada
when cooperating in the sale of a ranch listed with one of the brokers
to share in the commission equally.
5. That
thereafter Utter located Bonaire Development Company, a
California
corporation, which purchased all of the stock of Monitor Livestock
Company from the stockholders for a sales price of $669,550.00.
6. That prior
to the time the sale was consummated Utter and
Moore
agreed that Utter's share of the commission would be $12,500.00, which
agreement thereafter controlled.
7. That the
buyer and seller agreed that Utter's share of the commission was Utter's
property.
8. That the
full commission was agreed to be paid to
Moore
and
Moore
agreed to deliver Utter's $12,500.00 share of the commission to Utter
when
Moore
received the first $12,500.00 of the commission.
9. That
Moore
received the first $12,500.00 of the commission, as part of a promissory
note
Moore
agreed to take as part payment of the commission, on or about
July 1, 1971
.
10. That prior
to the payment of the note or any further commission, Moore became
indebted to and delinquent in the payment of taxes to the United States
of America resulting in a levy being made by the United States of
America upon the stockholder sellers in an amount in excess of the total
commission due Moore and Utter.
11. That
following the commencement of this action, the selling stock holders
paid $18,948.00 of the commission into the Registry Fund of this Court
pending the Court's decision herein.
12. That no
part of the commission has been paid to or received by Utter.
Conclusions
of Law
As conclusions
of law the Court concludes:
1. That
Utter's share of the commission was agreed by Utter and
Moore
to be $12,500.00.
2. That
Moore
should have paid Utter $12,500.00 out of the total commission as Utter's
share of the commission and the payment should have been made on or
about
July 1, 1971
.
3. That
Moore
failed to pay Utter any part of the commission.
4. That
$12,500.00 of the total commission was the property of Utter.
5. That a
fiduciary relationship exists between cooperating brokers under which
each receives and holds as trustee that which is due the other and such
relationship existed between Utter and
Moore
.
6. That Utter
is entitled to and is the owner of $12,500.00 plus interest of the funds
held in the Registry Fund of the Court in this matter.
7. That the
United States of America
is not entitled to property of Utter in payment of taxes due from
Moore
.
LET JUDGMENT
ENTER ACCORDINGLY.
Judgment
Now, by virtue
of the findings of fact and conclusions of law separately made by the
court, and filed herein,
It is ordered,
adjudged, and decreed:
1. Plaintiff
C. C. Utter shall be paid from the funds in the Registry Fund of this
Court in this matter the sum of $12,500.00 together with interest
thereon at the rate of seven percent per annum from
July 1, 1971
, until paid.
2. The balance
of said funds shall be paid to the
United States of America
and applied upon the tax obligation of defendant C. W. Moore.
3. Plaintiff
C. C. Utter has no interest in any further commission due to defendant
C. W. Moore from the other Defendants, excluding the
United States of America
.
4. The parties
hereto shall each pay their own costs and attorney's fees.
Dallas Airmotive, Inc., a Delaware
corporation, Plaintiff v. The Honorable Frank S. Schmidt, District
Director of Intermal Revenue, et al., Defendants
U.
S. District Court, So. Dist. Fla., Miami Div., No. 65-674-Civ.-EC,
7/14/66
[1954 Code Sec. 6321]
Tax liens: Levy: C. O. D. collections: Funds held in custodial
capacity: Another's property.--A $19,000 C. O. D. collection made by
an airline on behalf of the plaintiff, an engine overhaul facility, for
delivering two aircraft engines to Lima, Perú and then commingled in
the airline's bank account was held by the airline in a trust or
custodial capacity and was not subject to a federal tax lien or claims
of other creditors against the airline.
Cunningham
& Weinstein, 812 Ainsley Bldg.,
Miami
,
Fla.
, for plaintiff. O'Connor, Gordon & Breuel, 1206 Alfred I. duPont
Bldg., Miami, Fla., William A. Meadows, Jr., United States Attorney, P.
O. Box 1070, Miami, Fla., for defendants.
Findings
of Fact and Conclusions of Law
CHOATE,
District Judge:
This cause
came regularly on for trial before the Court without a jury. The Court
considered the pretrial stipulation, the pleadings, heard the testimony
of the witnesses, examined the documentary exhibits, heard the
statements and arguments of counsel, and was otherwise fully advised.
The Court, therefore, makes the following findings of fact and
conclusions of law:
Findings
of Fact
(1) This is an
action for declaratory judgment, injunction and return of money paid to
the defendants by Aerovias Sud-Americana, Inc., a/k/a International, S.
A., which allegedly constituted trust or custodial funds belonging to
the plaintiff.
(2) Federal
jurisdiction is invoked on diversity of citizenship as to the defendant,
Charlotte Aircraft Corp. and pursuant to Title 28, U. S. C., §§ 1346,
2463 and 2410, as to the defendants Frank S. Schmidt and General William
F. McKee, who are agents and officials of the United States of America.
(3) During the
months of January, February and March of 1965, Aerovias Sud-Americana,
Inc. a/k/a ASA International Airlines, was a scheduled and certificated
United States
air carrier.
(4) The
plaintiff was, at all times material, an engine overhaul facility having
its principal place of business at
Dallas
,
Texas
.
(5) On
January 28, 1965
, James H. Squires, Treasurer of Dallas Airmotive, Inc., made
arrangements with Wayne P. Courter, Traffic Manager of ASA International
Airlines, to ship two (2) certain aircraft engines from
Miami
,
Florida
, to
Lima
, Perú, by ASA International Airlines.
(6) The
arrangements were made by long distance telephone call, later confirmed
by an exchange of telegrams.
(7) The
conditions of the shipment were that ASA International Airlines would
collect Nineteen Thousand and 00/100 ($19,000.00) Dollars on delivery
(C. O. D.) for the account of the shipper.
(8) The
plaintiff asked for, and received, special assurance that its C. O. D.
collection would not be "mixed up with the financial affairs"
of ASA International Airlines, which the plaintiff knew to be shaky.
(9) On
February 24, 1965
, the account of ASA International Airlines was credited with $20,000.00
by reason of said transfer.
(10) Wayne P.
Courter sent a teletype to the
Lima
, Perú station of the ASA International Airlines requesting that the C.
O. D. check be made directly payable to the plaintiff. This teletype was
received by Tony Urreta, who was then Station Manager at
Lima
.
(11) The
consignee of the engines was "SATCO", a division of the
Peruvian Airforce. On
February 19, 1965
, SATCO received delivery of the two engines, and was requested by ASA's
representatives to make its check payable to the plaintiff. SATCO
declined to do so because of the C. O. D. and insisted on making its
check payable to ASA International Airlines; and, on February 19, 1965,
gave to ASA International Airlines its check N° 0065, drawn on the
Banco de Fomento Agropecuario del Perú, this check was equivalent to a
sum slightly in excess of Nineteen Thousand and 00/100 ($19,000.00)
Dollars, and represented the C. O. D. collection, plus an exchange fee.
The check represented no part of the freight due to ASA on the Air
Waybill for which amount credit was extended to the consignee by ASA.
(12) On the
date in question, the ASA office in Perú, had only one active bank
account at the Banco Popular del Perú,
Lima
, Perú. On February 21, 1965, the check was negotiated by ASA through
this account; however, on the records of ASA's Office at
Lima
, Perú, the proceeds were treated as "separate funds, being the
property of Dallas Airmotive".
(13) During
the months of January, February and March of 1965, ASA International
Airlines maintained its general bank account (Account N° 010-30-446-6)
at the Curtiss National Bank of Miami Springs,
Miami
,
Florida
.
(14) On
February 18, 1965, the District Director of Internal Revenue for
Florida
, by Revenue Officer Paul H. Behlan, served a Levy on ASA International
Airlines at its business locale, Post Office Box 66-146,
Miami
International
Airport
,
Miami Springs
,
Florida
. On February 23, 1965, the said Paul H. Behlan executed a Release of
Levy, with respect to the aforesaid Levy.
(15) On or
about February 22, 1965, all stations of ASA had received instructions
to cable transfer all available funds to
Miami
. On that date, Tony Urreta, who was in charge of the ASA station at
Lima
, Perú, ordered that the Banco Popular de Lima make a cable transfer of
Twenty Thousand ($20,000.00) Dollars from
Lima
, to ASA's bank account at the Curtiss National Bank,
Miami
.
(16) On
February 23, 1965, the teletype facilities of ASA had been shut down for
non-payment of charges. At about 10:30 A. M. on that date, Tony Urreta
called Miami and spoke to Wayne P. Courter, the substance of said
conversation was that a $20,000.00 cable transfer was on its way but
that only $1,000.00 of this amount represented the funds of ASA, and the
remainder represented C. O. D. funds belonging to Dallas Airmotive, Inc.
(17) On
February 23, 1965, F. Owen Williams, President of ASA, was at the
Curtiss National Bank waiting for funds to come in. Immediately after
the telephone call from
Lima
, Mr. Courter of ASA called Mr. Williams, at the bank, and informed him
that the cable transfer from
Lima
would contain $19,000.00 of C. O. D. funds belonging to Dallas
Airmotive, Inc. Mr. Williams waited at the bank approximately four hours
on that date.
(18) On
February 23, 1965, at 2:43 P. M., the said Curtiss National Bank
received a cable transfer of funds from the Banco Popular del Perú, to
the account of ASA International Airlines, in the amount of $20,000.00.
This cable transfer was made by Peterson's International Code.
(19) In
banking practice, cable transfers are treated as cash items.
(20) On
February 23, 1965, immediately after receipt of the cable transferring
the $20,000.00, pursuant to written directions from F. O. Williams,
President of ASA, and D. E. Aldridge, Treasurer of ASA, ASA
International Airlines caused to be issued by the Curtiss National Bank,
the following cashier's checks:
Check
No. Payee Amount
3320 Internal Revenue Service .......... $7,663.51
3321 Internal Revenue Service .......... 960.05
3322 Internal Revenue Service .......... 6,480.86
3323 Charlotte Aircraft Corporation .... 7,000.00
All these checks were issued, delivered and charged in the order listed
above.
(21) At the close of business on
February 22, 1965, ASA had
a bank balance of .................... $2,631.09
During the business day of
February 23, 1965, ASA received
into its bank account,
in addition to the $20,000.00,
other transfers or deposit
in the total sum of .................. 9,075.41
The cashier's checks listed
in Finding #20, totalled ............. $22,104.42
and would not have been issued had not an officer of the bank had
knowledge of the receipt of the $20,000.00 cable transfer.
(22) On
February 23, 1965, ASA International Airlines was indebted to Charlotte
Aircraft Corporation in an amount in excess of $7,000.00 for overdue
aircraft lease rental.
(23) On
February 23, 1965, the said ASA International Airlines was indebted to
the District Director of Internal Revenue for FICA, Withholding and
other Federal Payroll Taxes, in an amount of at least $15,104.42.
(24) The
Internal Revenue Service delivered a release of levy simultaneously with
the receipt of the cashier's checks; however, the assets it had under
levy were without any substantial value in excess of a mortgage in favor
of the Small Business Administration.
(25)
Subsequent to February 23, 1965, Charlotte Aircraft Corporation received
additional aircraft lease payments from ASA in a sum in excess of
$6,000.00.
(26) On
April 10, 1965
, ASA International Airlines filed a Petition in Proceedings for an
Arrangement Under Chapter XI of the Acts of Congress Relating to
Bankruptcy, in the United States District Court for the Southern
District of Florida, Miami Division, In Bankruptcy, No. 65-124-BK-DD.
(27) When ASA
caused the cashier's checks to be written to the defendants, ASA knew
that the cable transfer represented C. O. D. money belonging to the
plaintiff. Neither defendant knew of the collection, but they knew that
ASA was expecting money in from some source.
Conclusions
of Law
I. The Court
has jurisdiction of the parties and the subject matter of this action.
II. The
$19,000.00 C. O. D. collection made by ASA on behalf of the plaintiff,
Dallas Airmotive, Inc., were, at all times, funds belonging to the
plaintiff, which were held by ASA solely in a trust or custodial
capacity.
III. As
beneficiary of such trust funds, the plaintiff is entitled to trace such
funds, even though they have been commingled and to recover them against
all persons, except persons occupying the position of a bonafide
purchase for value.
IV. Both
defendants, being pre-existing creditors of ASA, are not bonafide
purchasers, and neither of them has so changed its position in reliance
upon the payment as to work an estoppel against the plaintiff.
V. The correct
method of tracing the plaintiff's trust funds, which were commingled in
ASA's general bank account at the Curtiss National Bank, is by the rule
of first in-first out (FIFO).
VI. The
$20,000.00 cable transfer is deemed and declared to be first a transfer
of $19,000.00 of trust funds belonging to the plaintiff, and the
balance, or $1,000.00, was ordinary funds of ASA.
VII. The Court
holds according to the principle of first in-first out, that the trust
funds are traced in the following manner:
(a) The
cashier's checks issued to the defendants, Frank S. Schmidt and
Charlotte Aircraft Corporation, in the total sum of $22,104.42,
consisted partly of trust funds belonging to the plaintiff, and partly
of ordinary funds of ASA.
(b) The first
$11,706.50 of said sum of $22,104.42, were not trust funds, but were the
ordinary funds of ASA, which the defendants were entitled to receive and
retain.
(c) The
balance of $10,397.93, received by the defendants, were trust funds
belonging to the plaintiff, and which it is entitled to recover in this
case.
(d) Of the sum
of $15,104.42 received by the defendant, Frank S. Schmidt, as District
Director of Internal Revenue, $11,706.50 were ordinary funds of ASA, and
$3,397.92 were trust funds belonging to the plaintiff, Dallas Airmotive,
Inc.; of the sum of $7,000.00 received by the defendant, Charlotte
Aircraft Corporation, the entire sum was trust funds belonging to the
plaintiff, Dallas Airmotive, Inc.
VIII. The
plaintiff is entitled to have and recover from the defendant, Frank S.
Schmidt, as District Director of Internal Revenue, the sum of Three
Thousand Three Hundred Ninety Seven and 92/100 ($3,397.92) Dollars.
IX. The
plaintiff is entitled to have and recover from the defendant, Charlotte
Aircraft Corporation, the sum of Seven Thousand and 00/100 ($7,000.00)
Dollars.
Commercial Credit Corporation, a
corporation, Plaintiff-Respondent v. Max Bosse, Bosse Motor, Inc., a
corporation; Mackenzie Auto, Inc., a corporation; Ralph Leese; C. J.
Billmeyer; Dale Kirkham; R. B. Bistline & Martha Bistline;
Mendenhall's of Pocatello, a corporation; Charles R. Hall, d/b/a Hall
Machinery & Motor Supply, and Alma Marley, Sheriff,
Defendants-Appellants, and United States of America, Additional
Defendant-Appellant
In
the Supreme Court of the State of
Idaho
, No. 8210. Pocatello, April Term, 1955, 283 P2d 937, May 11, 1955
Appeal from the District Court of the Fifth Judicial District of the
State of Idaho, in and for Bannock County.
[1939 Code Sec. 3670--similar to 1954 Code Sec. 6321]
Liens for taxes: Proceeds of sale of property covered by trust
receipt:
Idaho
law.--Respondent bought and paid for an automobile which was shipped
to A who, on
June 1, 1953
executed a trust receipt therefor in favor of respondent. Thereafter, A
sold the automobile to B, whose payment therefor to A was, on June 29,
1953, deposited in its bank, and on that date a check for the same
amount by A was made payable to respondent to cover its security
interest in the automobile. Garnishment summons was served by
appellant-creditors of A on the bank against the account of A on June
30, July 1, and
July 3, 1953
. In an action by respondent for an accounting of the proceeds of sale,
the Government claimed prior tax liens on the funds garnisheed by reason
of notice of lien for income, withholding and Federal Insurance
Contribution Act taxes against A filed with the
County
Recorder
on July 21 and
July 29, 1953
. The Supreme Court of Idaho held (1) that A had a right to sell the
automobile under the terms of the trust receipt and the Uniform Trusts
Receipts Act of Idaho, (2) that the specific proceeds of sale were
identifiable in the garnisheed account, and (3) that respondent's
security interest in the proceeds of sale was not a lien, but was a
property interest which was unaffected by the attachment liens or the
tax liens filed against the property of A. It affirms the judgment of
the trial court in favor of respondent. BACK REFERENCES: 55FED ¶5357.03.
Affirming an unreported decision of an Idaho District Court.
Gee &
Hargraves,
Pocatello
, Ida., for respondent. Bistline & Bistline, Pocatello, Ida., for
appellants Mackenzie Auto, Inc., et al. Sherman F. Furey, Jr., United
States Attorney, and Marion J. Callister, Assistant United States
Attorney, for appellant, United States of America.
PORTER, Judge:
Idaho
has adopted the Uniform Trust Receipts Act. It is contained in Title 64,
Chapter 10, Idaho Code. The object of the Uniform Trust Receipts Act and
the method of operation thereunder are described in In re Chappel,
77 Fed. Supp. 573, at page 575, as follows:
"The
object of the Act is to standardize and protect the trust receipt method
of financing the acquisition and resale of goods in their journey from
producer to retailer. Vol. V Fordham Law Review 240, 242. Stripped of
all technical verbiage a trust receipt has been well defined as 'a
useful and convenient method of financing commercial transactions by
means of which title passes directly from the manufacturer or seller to
the banker or lender who as owner delivers the goods to the dealer in
whose behalf he is acting secondarily, and to whom title goes ultimately
when the primary right of the banker has been satisfied." Hamilton
National Bank v. McCallum, 6 Cir., 58 Fed. (2d) 912."
The interest
of the entruster in the property under a trust receipt transaction is
denominated a "security interest". The Trust Receipts Acts of
the various jurisdictions are not entirely uniform. Under our statute,
Section 64-1002, I. C., the security interest of the entruster may be
derived from the trustee or from any other person.
[The
Facts]
Pursuant to
Section 64-1013, I. C., respondent, as entruster, and Bosse Motor, Inc.,
of
Pocatello
, as trustee, on March 2, 1953, filed a statement of trust receipt
financing with the Secretary of State. On May 26, 1953, Nash Motors, a
division of Nash-Kelvinator Sales Corp., shipped a Nash automobile to
Bosse Motor, Inc., at
Pocatello
; and such Nash-Kelvinator Sales Corp. drew a sight-draft on respondent
for $1864, being the sale price of such automobile. Respondent paid the
sight-draft and also paid the freight on the automobile in the sum of
$131. On
June 1, 1953
, Bosse Motor, Inc., executed a trust receipt in favor of respondent
covering such Nash automobile in the sum of $1995.
On June 29,
1953, Bosse Motor, Inc., sold and delivered possession of such
automobile to Bosse Nash, Inc., a corporation transacting business in
Boise. The sale price was $1995. Bosse Nash, Inc., on such date
delivered its check in the sum of $1864 to Bosse Motor, Inc., being the
amount of the purchase price of the car from Nash Motors, and arranged
to pay the $131 representing the freight charge by an offset on accounts
between the corporations. On the same date, Bosse Motor, Inc., deposited
such check in its account in the Idaho Bank & Trust Co., of
Pocatello; and drew on such bank and delivered to the Commercial Credit
Corporation a check for $1995 to cover the security interest of
respondent in such Nash automobile.
On June 30,
July 1, and July 3, 1953, all the appellants except Alma Marley, Sheriff
of Bannock County, and
United States of America
, caused to be served upon the Idaho Bank & Trust Co. garnishments
under writs of attachment issued in suits brought against Bosse Motor,
Inc. The Idaho Bank & Trust Co., in order to discharge itself as
garnishee, delivered to the sheriff its cashier's checks aggregating
$2,099.14 and exhausting the account of Bosse Motor, Inc. When
respondent presented the check from Bosse Motor, Inc., it was not paid
by the bank by reason of the garnishments.
On July 8,
1953, respondent served a demand on Bosse Motor, Inc., for an accounting
for the proceeds received from the sale of the Nash automobile.
On July 9,
1953, respondent commenced this action in claim and delivery to recover
$1995 from the possession of the defendant and appellant, Alma Marley,
Sheriff of Bannock County. The nine defendant attaching creditors
answered and moved that appellant,
United States of America
, be made a defendant, which motion was granted by the court.
Appellant
,
United States of America
, answered the complaint claiming prior tax liens on the funds in
question.
Thereafter
respondent dismissed the action as against Max Bosse and Bosse Motor,
Inc., a corporation. The case was tried on the issues between respondent
and appellants. At the trial it appeared from the evidence that the
United States Commissioner of Internal Revenue assessed income taxes
against Bosse Motor, Inc. in the amount of $1,286.45 for the year 1952;
that the assessment list containing such assessment was received by the
Director of Internal Revenue for the District of Idaho on April 17,
1953; and that notice of such tax lien was filed in the office of the
Recorder of Bannock County on July 21, 1953. It further appeared from
the evidence that the United States Commissioner of Internal Revenue
assessed withholding and Federal Insurance Contribution Act taxes
against Bosse Motor, Inc., in the amount of $1,882.55 for the period
ending June 30, 1953; that the assessment list containing such
assessment was received by the Director of Internal Revenue for the
District of Idaho on July 28, 1953, and that notice of such tax lien was
filed in the office of the Recorder of Bannock County on July 29, 1953.
The taxes covered by such tax liens have not been paid although demand
has been made therefor.
Judgment in
favor of respondent was entered by the trial court in the sum of $1864.
Appellants have appealed from such judgment.
[Opinion]
Appellants do
not question the regularity of the trust receipt transaction between
respondent and Bosse Motor, Inc. They do not appear to challenge the
ownership of the Nash automobile by respondent to the extent of
respondent's security interest therein. In re Otto-Johnson Mercantile
Co.
, 52 Fed. (2d) 678; Walton v. Commercial Credit Co., (S. D.)
299 N. W. 300; In re K. Marks & Co., 222 Fed. 52; Chichester
v. Commercial Credit Co., (D. C. A. Cal.) 99 P. (2d) 1083; C. I.
T. Corp. v. Commercial Bank of Patterson, (D. C. A. Cal.) 149 P. 2d
439.
Appellant
,
United States of America
, does not contend that it had a tax lien on the automobile superior to
the rights of respondent.
Appellants
contend that the only liberty of sale possessed by Bosse Motor, Inc.,
under the trust receipt and Section 64-1009, I. C., was to sell the
automobile in the ordinary course of trade. That the purported sale to
Bosse Nash, Inc., was not a sale in the ordinary course of trade and was
unauthorized and void. That respondent still retained the ownership of
its security interest in such automobile after the sale; that its rights
to protect its security interest are limited to a recovery of the
automobile; and that respondent has no property interest in or lien upon
the proceeds of the sale of such car received by Bosse Motor, Inc.
[Effect
of Trust Receipt]
The trust
receipt contains these provisions:
"Trustee's
possession of said Merchandise hereunder is for the purpose of the sale
thereof at retail, in the regular course of business. * * * Trustee,
upon consent of Entruster, will sell said Merchandise for not less than
the minimum, sale price set opposite each item of the above mentioned
Merchandise and, immediately after sale, trustee shall deliver to
Entruster from the proceeds of said sale, the amount of said minimum
sale price. Until such delivery, Trustee shall hold the entire proceeds
in trust for Entruster, separate from the funds and property of
Trustee."
Section
64-1009, I. C., deals both with sales in the ordinary course of trade
and with sales to others than buyers in the ordinary course of trade and
with the respective rights arising out of such transactions between such
purchasers and the entruster. It nowhere prohibits sales other than in
the ordinary course of trade where the trustee has liberty of sale. Such
statute also provides:
"If
the entruster consents to the placing of goods subject to a trust
receipt transaction in the trustee's stock in trade or in his sales or
exhibition rooms, or allows such goods to be so placed or kept, such
consent or allowance shall have like effect as granting the trustee
liberty of sale."
The Nash
automobile was kept in the trustee's stock in trade in its garage in
Pocatello
with the knowledge and consent of respondent. The record also indicates
that at least three other cars had been sold from time to time in the
same manner by Bosse Motor, Inc., to Bosse Nash, Inc. The controversy in
this case is not over the respective rights of respondent and Bosse
Nash, Inc., or of an innocent purchaser from Bosse Nash, Inc., in and to
the automobile. It is immaterial so far as the rights of appellants are
concerned as to whether Bosse Motor, Inc., had a right to sell the car
under the trust receipt or under the statute, or whether it had a right
to sell the car by reason of respondent's acquiescence in such
transactions. Respondent has elected to recognize and ratify such sale
and is entitled to pursue its remedy against the proceeds thereof. There
is no merit in appellants' contentions in this respect.
Appellants
also contend that respondent has no property interest in the proceeds of
the sale but at most has a lien thereon which was inchoate until the
serving of the demand for an accounting on July 8, 1953. Section
64-1010, I. C., so far as material herein, reads as follows:
"Entruster's
Right to Proceeds. Where, under the terms of the trust receipt
transaction, the trustee has no liberty of sale or other disposition,
or, having liberty of sale or other disposition, is to account to the
entruster for the proceeds of any disposition of the goods, documents or
instruments, the entruster shall be entitled, to the extent to
which and as against all classes of persons as to whom his security
interest was valid at the time of disposition by the trustee, as
follows:
*
* *
"(b)
to any proceeds or the value of any proceeds (whether such
proceeds are identifiable or not) of the goods, documents or
instruments, if said proceeds were received by the trustee within ten
days prior to either application for appointment of a receiver of the
trustee, or the filing of a petition in bankruptcy or judicial
insolvency proceedings by or against the trustee, or demand made by the
entruster for prompt accounting; and to a priority to the amount of such
proceeds or value; and also
"(c)
to any other proceeds of the goods, documents or instruments which are
identifiable, unless the provision for accounting has been waived by the
entruster by words or conduct; and knowledge by the entruster of the
existence of proceeds, without demand for accounting made within ten
days from such knowledge, shall be deemed such a waiver." (Italics
supplied.)
Section
64-1001, I. C., defines "security interest" as follows:
"Security
interest' means a property interest in goods, documents or
instruments, limited in extent to securing performance of some
obligation of the trustee or of some third person to the entruster, and
includes the interest of a pledgee, and title, whether or not expressed
to be absolute, whenever such title is in substance taken or retained
for security only." (Italics supplied.)
In this case
the specific proceeds of the sale of the Nash car are identifiable and
are included in the funds now in the hands of appellant sheriff. The
deposit of such proceeds to the account of Bosse Motor, Inc., and the
giving of its check therefor to respondent, did not change the character
thereof or deprive respondent of its rights therein. The testimony is
that such procedure was only a convenient bookkeeping practice. Under
the statute respondent is entitled, to the extent of its security
interest, to the proceeds of the sale. Its interest therein is a
property interest and not a lien.
The words,
"shall be entitled to" are defined in McIntosh v. Vail,
(
W. Va.
) 28 S. E. 2d 95, at page 97, as follows:
"Nor
do the words 'shall be entitled to' create any difficulty. The
expression 'entitled to' has been construed either as signifying the
actual vesting of title or as giving an equitable right to claim title. Holbrook
v. Wightman, 31
Minn.
168, 17 N. W. 280; Thompson v. Thompson, 107
Ala.
163, 18 So. 247; Spencer v. Barker, 96
Kan.
360, 149 P. 736; Meehan v. Jones, C. C., 70 Fed. 453."
In
Hamilton
Nat. Bank v. McCallum, 58 Fed. (2d) 912, at page 914, the court
held that the entruster had a property interest in the proceeds of the
sale by the trustee under a trust receipt and used the following
language:
"Whatever
was received for appellants' cars, either in the way of money or
property, less profit or commissions, became the property of the
appellants."
In In re
James, Inc., 30 Fed. (2d) 555, at page 558, the court held that the
proceeds of a sale became the property of the entruster and said:
"The
trust receipts conferred a power of sale, with the corresponding duty,
however, to keep the proceeds separate, and immediately hand such
proceeds to each trust receipt holder. As title to the motorcars was not
in the bankrupt, neither was the money received from their sale. And
such security title of a trust receipt, when it properly comes to its
holder from the exporter or manufacturer, and not from one whose debt is
secured thereby, will be protected."
See
also, In re Cattus, 183 Fed. 733; Universal Credit Co. v.
Citizens St. Bank, (
Ind.
) 64 N. E. 2d 28.
[Conclusion]
The proceeds
of the sale of the Nash car being identifiable, we are not called upon
herein to determine the nature of the entruster's rights to the value of
proceeds of a sale by the trustee where the proceeds are not
identifiable.
Having
determined that the security interest of respondent in the funds held by
appellant sheriff is a property right, it follows that respondent was
entitled to maintain its action in claim and delivery to recover such
proceeds. Such property right was at all times present in such proceeds
and is unaffected by any of the tax liens or attachment liens of
appellants against the property of Bosse Motor, Inc. The judgment of the
trial court is affirmed. Costs to respondent.
TAYLOR, Chief
Judge, and KEETON, ANDERSON and SMITH, Judges, concur.
Vollmer H. Campbell and James Carter,
Plaintiffs and Addison-Chevrolet Sales, Inc., Intervenor v. L. A.
Chamberlain, Director of Internal Revenue, and The National Bank of
Washington, Defendants
In
the United States District Court for the District of Columbia, Civil
Action No. 3061-52, March 16, 1954
Tax liens: Bank deposits: Another's funds deposited in private
account.--On July 3, 1952, plaintiff Carter gave plaintiff Campbell
$1700 in cash and authorized him to purchase an automobile from the
intervenor. On the same day,
Campbell
purchased the automobile and delivered it to Carter. Although he had the
cash in his pocket at the time,
Campbell
gave the intervenor his personal check for $1633.62. Since he had only
$700 in his checking account at the time,
Campbell
deposited on July 7 (the first business day after the holidays) $1200 of
the money he had received from Carter. On July 8, before the intervenor
deposited the check with the bank, the Collector had a notice of tax
lien served on the bank in an amount in excess of the balance in
Campbell
's checking account. As the $1200 deposited on July 7 was not the
property of
Campbell
but was the property of Carter, it was not subject to the tax lien.
However, the remaining $700 in the account was.
Joseph J.
Lyman,
1001 Connecticut Avenue
,
Washington
, D. C., for plaintiffs. Jo V. Morgan, Jr., Southern Building,
Washington, D. C., for intervenor. William T. Becker, Assistant United
States Attorney, for defendant Chamberlain. Louis Denit, c/o
Brandenburg
&
Brandenburg
,
719 Fifteenth Street, Northwest
,
Washington
, D. C., for defendant National Bank of
Washington
.
Findings
of Fact and Conclusions of Law
TETTS,
District Judge:
The above
entitled cause having come on for final hearing, and the Court having
heard the evidence presented, this 16th day of March, 1954, make the
following findings of fact and conclusions of law:
Findings
of Fact
1. On
July 3, 1952
plaintiff Carter gave plaintiff Campbell approximately $1700.00 in cash
and authorized plaintiff Campbell to purchase from the Intervenor,
Addison-Chevrolet Sales, Inc. a new Chevrolet automobile.
2. On
July 3, 1952
plaintiff Campbell in his own name purchased said new automobile from
Intervenor, and although he had the cash in his pocket, gave his own
personal check in the sum of $1633.62, drawn on the National Bank of
Washington
. At that time plaintiff
Campbell
had approximately $700.00 in his said account.
3. The
aforesaid transaction took place on
July 3, 1952
, too late in the afternoon for the said check to be deposited that day.
On July 7, 1952, the next business day upon which the banks were open,
Intervenor deposited said check for collection in its bank, Hamilton
National Bank of Washington, and said check reached the said The
National Bank of Washington, having gone through the clearing-house, on
July 8, 1952.
4. Plaintiff
Campbell kept the money given him by plaintiff Carter separate from any
other funds in his possession, and on July 7, 1952 deposited $1200.00 of
that amount in his account in the National Bank of Washington, bringing
the balance in said account to slightly over $1900.00. His purpose was
to provide sufficient balance to cover the payment of the said check.
5. On July 8,
1952 defendant L. A. Chamberlain's predecessor in office, former
defendant Eugene Travers, then Acting Collector of Internal Revenue,
caused to be served on the National Bank of Washington notice of a valid
lien for taxes due by plaintiff Campbell in a sum in excess of the
balance in said account.
6. The
National Bank of
Washington
, because of the notice of lien, refused to pay the said check, and it
was returned to Intervenor through banking channels. No payment has ever
been made of said check.
7. At the time
of the sale of said automobile, to wit, on
July 3, 1952
, the automobile was delivered to plaintiff Campbell by Intervenor, who
thereafter delivered the said automobile to plaintiff Carter.
Conclusions
of Law
Upon the
foregoing findings, the Court concludes as a matter of law that the lien
of the collector was valid as to such money in said bank account which
was the property of plaintiff Campbell, but that $1200.00 of said money,
being the deposit on July 7, 1952, was the property of Carter, and not
subject to said lien, and that in view of the stipulation of plaintiff
Carter in the pretrial order, that said $1200.00 should be paid over to
the Intervenor by the National Bank of Washington and that the remainder
of said account in the name of plaintiff Campbell should be paid over to
defendant L. A. Chamberlain, as Director of Internal Revenue by the
National Bank of Washington, and the Court further concludes that
Intervenor is entitled to judgment against plaintiff Campbell in the sum
of $433.62, and interest at 6% per annum on $1,633.62 from July 8, 1952
to the date of the judgment herein, and that the complaint of the
plaintiffs should be dismissed.
Final
Judgment
Upon
consideration of the pleadings and the evidence, and in view of the
findings of fact and conclusions of law made by the Court, it is by the
Court this 16th day of March, 1954,
ORDERED,
ADJUDGED AND DECREED that Intervenor, Addison-Chevrolet Sales, Inc. is
entitled to $1200.00 out of the account of plaintiff Vollmer H. Campbell
in the National Bank of Washington, and that the defendant L. A.
Chamberlain as Director of Internal Revenue is entitled to the balance
in said account, and that the National Bank of Washington should pay
over forthwith said sums from said bank account to Intervenor and to
defendant Chamberlain, and upon said payments shall stand discharged
with respect to any obligations in connection with said bank account of
plaintiff Vollmer H. Campbell.
AND IT IS
FURTHER ORDERED, ADJUDGED AND DECREED that Intervenor have judgment, and
the same is hereby entered, in the sum of $433.62 and interest at 6% per
annum from July 8, 1952 to the date of this judgment, and it is further
ordered and decreed that the complaint of the plaintiff be dismissed
with prejudice.
United States of America
, Plaintiff, v. Western Union Telegraph Company and Northwestern
Telegraph Company, Defendants
United
States District Court, Southern District of New York, Civil 21-539, 52
FSupp 553, Filed October 1, 1943
Application of rents to tax indebtedness: Res judicata.--In this
action the Government seeks to compel the application of the rental sums
of $75,000, which become due each year under a lease of May 7, 1881
between Northwestern Telegraph Company, as lessor, and Western Union
Telegraph Company, as lessee, to the payment of the income tax
indebtedness of the defendant (Northwestern) for the tax years 1927 to
1941, for which judgments thereon have been, or are in the process of
being obtained by the plaintiff. Defendant's motion for summary
judgment, grounded upon the defense of res judicata, is granted. The
prior decision held that such rentals, which, under the 1881 lease were
payable directly to lessor's stockholders, may not be impressed with a
lien for income taxes due from the lessor for 1917-1922, since the
lessor never had possession of the rentals and had no beneficial
interest in them. See
U. S.
v. Western Union Telegraph Co., 19 Fed. (2d) 157 (D. C. S. D. N.
Y.), 1927 CCH ¶7052.
James B. M.
McNally, U. S. Attorney for the Southern District of New York, for
plaintiff. Frank J. Dufficy, of Counsel. Francis R. Stark and Clarence
W. Roberts, for defendant, The Western Union Telegraph Co., 60 Hudson
St., New York City, N. Y. Clarence W. Roberts, of Counsel.
Opinion
HULBERT, D.
J.:
The defendant,
Western Union Telegraph Company moves: (1) for summary judgment; (2) to
add parties, or in the alternative, to dismiss the plaintiff's complaint
for lack of indispensable parties.
Plaintiff
moves for a temporary injunction.
Defendant's
motion number one, is granted, which renders unnecessary the
consideration and determination of the other motions.
In this action
the Government seeks to compel the application of the rental sums of
$75,000, which become due on July 1 and January 1 of each year under a
lease of May 7, 1881 between the Northwestern Telegraph Company, as
Lessor, and the Western Union Telegraph Company, as Lessee, to the
payment of the income tax indebtedness of the defendant Northwestern
Telegraph Company for the tax years 1927 to 1941, for which judgments
thereon have been, or are in the process of being, obtained, by the
plaintiff.
[Defense
of Res Judicata]
The motion for
summary judgment is grounded upon the defense of res judicata.
In 1881
Northwestern Telegraph Company leased to Western Union Telegraph
Company, all of its telegraph lines and equipment for the term of 99
years commencing
July 1st, 1881
. The Lessee agreed, among other things, to pay the sum of $150,000 per
year, in semiannual payments on January 1st and July 1st of each year,
directly to the stockholders of the Lessor.
A similar
action was brought by the Government to recover the taxes from
Northwestern Telegraph Company for the years 1917 to 1922. In that case
it was determined that the Government could not levy upon the rental
money, even though it constituted taxable income of the Lessor, since
the dividends were not the property of the Lessor.
U. S.
v. Western Union Telegraph Co., 19 Fed. (2d) 157 (D. C. S. D. N.
Y.) [1927 CCH ¶7052], unanimously affirmed by the Circuit Court of
Appeals (2 Cir.) 50 Fed. (2d) 102 [2 USTC ¶754]. The Appellate Court
held that the statutory provision contemplates a lien for taxes on
tangible property only and that the lien could not attach to the payment
of future rents. Certiorari to the Supreme Court was not applied for.
The
doctrine of res judicata rests at bottom upon the ground that the party
to be affected, or some other with whom he is in privity, has litigated
or had an opportunity to litigate the same matter in a former action in
a court of competent jurisdiction. Postal Telegraph Cable Co. v.
Newport
, 247
U. S.
464, 476.
The
so-called estoppel (by judgment) is no mere technicality but a
reasonable measure calculated to save individuals and courts from the
waste and burden of relitigating old issues. Tillman v. National City
Bank of
New York
, 118 Fed. (2d) 631, 634 (2 Cir.), cert. denied, 314
U. S.
650.
Public
policy dictates that there be an end of litigation; that those who have
contested an issue shall be bound by the result of the contest; and that
matters once tried shall be considered forever settled as between the
parties. Baldwin v. Traveling Men's Assn., 283
U. S.
522, 525.
The doctrine
of res judicata has been applied even where the first judgment is
erroneous. Bennett v. Commissioner of Internal Revenue, 113 Fed.
(2d) 837 (5 Cir.) [40-2 USTC ¶9597]; Thornton v. Carter, 109
Fed. (2d) 316 (8 Cir.); Straus v. American Publishers' Ass'n, 201
Fed. 306 (2 Cir.);
United States
v. Maryland Casualty Co., 45 Fed. Supp. 286 (D. C. Mass.).
A
judgment which is wrong, but unreversed, is as effective as a judgment
which is right. Thornton v. Carter, supra, at 320.
In New
Orleans v. Citizens' Bank, 167
U. S.
371, the Court, through Mr. Justice White, said (p. 396):
The
proposition that because a suit for a tax of one year is a different
demand from the suit for a tax for another, therefore res judicata
cannot apply, whilst admitting in form the principle of the things
adjudged, in reality substantially denies and destroys it. The estoppel
resulting from the thing adjudged does not depend upon whether there is
the same demand in both cases, but exists, even although there be
different demands, when the question upon which the recovery of the
second demand depends has under identical circumstances and conditions
been previously concluded by a judgment between the parties or their
privies.
The Court of
Customs Appeals had from its organization consistently held the rule of res
judicata inapplicable to its decisions as to the classification of
imported commodities for the imposition of tariff duties. For some years
that court's jurisdiction of customs cases was exclusive and final, and
its practice, in this respect, had come to be settled.
Eventually
Congress granted a right of review in the Supreme Court which refused to
overturn this practice and apply the doctrine of estoppel by judgment in
this class of litigation.
In U. S. v.
Stone & Downer Co., 274
U. S.
225, that court in refusing to apply the principle of res judicata
and reversing the judgment of the Court of Customs Appeals, said,
through Mr. Justice Taft, who delivered the opinion:
It
is settled in this Court that the general rule by which a judgment
estops the parties in future litigation between them, to question either
a fact or a point of law necessary to the first judgment and adjudicated
therein, applies to cases of taxation as well as to other subjects of
litigation. This was decided in the case of New Orleans v. Citizens'
Bank, 167
U. S.
371.
It has been
held that the defense of res judicata will apply only where the
question to be determined in the second action is the same as that
determined in the first action. Thus in Tait v. Western Maryland Ry.
Co., 289 U. S. 620 [3 USTC ¶1109], it was held that even though the
subsequent claim is for the taxes for the years following the prior
adjudication, the judgment in the original action will act as a bar to
the second action where the facts have remained static.
This Court is
cognizant of the decision in Blair v. Commissioner, 300
U. S.
5 [37-1 USTC ¶9083].
In that case
the beneficiary of a trust assigned the income of a portion of it. The
Commissioner of Internal Revenue held that the entire income was taxable
to the beneficiary. The Board of Tax Appeals disagreed. The Circuit
Court of Appeals held that under the law of
Illinois
it was a spend-thrift trust and, therefore, the partial assignments were
void and the entire income was taxable to the beneficiary. Subsequently
the trustees brought an action in the Superior Court of Cook County,
Illinois, for the construction of the will with respect to the power of
the beneficiary to assign a portion of his interest. The Appellate Court
of Illinois held that the trust was not a spendthrift trust and that the
assignments were valid. Blair v. Linn, 274
Ill.
App. 23. At the time this decision was rendered proceedings as to the
taxes of subsequent years were pending. The Supreme Court held that the
Government's defense of res judicata was not a good defense. The
Court said that the ruling in Tait v. Western Maryland Ry. Co.,
289
U. S.
620 [3 USTC ¶1109], applied only where, in the subsequent proceeding
although relating to a different tax year, the questions presented upon
the facts and the law are essentially the same.
Here,
after the decision in the first proceeding, the opinion and decree of
the state court created a new situation. * * *
The
question of the validity of the assignments is a question of local law. Blair
v. Commissioner, supra, at page 9 [37-1 USTC ¶9083].
Under Erie
Railroad v. Tompkins, 304
U. S.
64 the Federal Courts must apply the State law. Whether the trust was or
was not a spendthrift trust, for the purpose of taxing income, was a
fact to be determined by the law of
Illinois
. The Circuit Court of Appeals in applying the
Illinois
law erred when they determined that the trust was a spend-thrift trust.
When the Appellate Court of Illinois held to the contrary, it changed
the facts of the case. Therefore, when the Supreme Court said that a
change in the law "created a new situation" it would seem they
meant that the change in the application of the law of
Illinois
had created a new factual situation.
If it were
believed that the plaintiff would present any facts essentially at
variance with those established in the earlier case of
U. S.
v.
Western Union
, supra, the Court would be disposed to deny the defendant's motion
for summary judgment and leave the issue to the determination of the
trial judge. In the prior
Western Union
case, the Appellate Court held that the rentals were not the property of
the Lessor but rather were the property of the Lessor's stockholders. In
U. S.
v. Long Island Drug Co. Inc., 115 Fed. (2d) 983 [41-1 USTC ¶9140],
the court said:
The
statement in United States v. Western Union Telegraph Co., 2
Cir., 50 Fed. (2d) 102 [2 USTC ¶754], to the effect that the lien
provided for in Sec. 3670 is limited to tangible property was a dictum
based on a too narrow reading of the statute and cannot be taken as
authoritative.
The Government
indicates in its brief that the only question that could be presented
upon the trial, and which is in fact argued here, is that in the case of
U. S. v. Warren R. R. Co., 127 Fed. (2d) 134 [42-1 USTC ¶9391]
(2 Cir.) and U. S. v. Morris & Essex R. Co., 135 Fed. (2d)
711 [43-1 USTC ¶9432] (2 Cir.) the rentals are held to be the property
of the Lessor corporation and not of the Lessor's stockholders.
But the
question of res judicata was not involved.
Except that
the United States Attorney asserts that the principle of law enunciated
in the prior U. S. v. Western Union Telegraph Co., has been
overruled by the two recent cases above mentioned, the issue in this
case is the same as in the prior Western Union case, since both
cases are based upon the lease of 1881. In other words the facts have
not changed.
While the
tendency of the courts in these progressive times in which we live is to
modernize the pattern of legalistic doctrine, this court considers
itself without any substantial authority to hold that the defense of res
judicata is invalid in this case. Particularly, since Congress, with
the presumed knowledge of the existing cases, could readily have made
adequate provision in the taxing statutes making inapplicable to tax
cases the doctrine of res judicata as it is, and always have
been, with respect to customs cases. Settle order on notice.
United States of America
, Plaintiff-Appellant, v. The Western Union Telegraph Company, The
Northwestern Telegraph Company, et al., Defendants-Appellees
(CA-2),
United States Circuit Court of Appeals for the Second Circuit, No. 230,
50 F2d 56, Decided June 1, 1931
Appeal from the District Court for the Southern District of New
York.Where a lessee, prior to an income tax, agrees with the lessor
company and its stockholders to pay rental direct to the stockholders, a
lien for the collection of income and profits taxes due from the lessor
for 1917-1922 may not be impressed against funds in the possession of
the lessee, such funds never having been in the possession of the
lessor. Affirming District Court decision, 19 F. (2d) 157.
George Z.
Medalie, United States Attorney, of
New York
, Attorney for Appellant. (Harry G. Herman, Assistant
United States
Attorney, of
New York City
, of Counsel.) Francis R. Stark, of
New York City
, Solicitor for Appellee, The Western Union Telegraph Co. (Denis O'L.
Cohalan, Francis N. Whitney, Robert C. Barnett, all of
New York City
, of Counsel.) Arthur L. Shipman, of
Hartford
,
Conn.
, Solicitor for Appellee, The Northwestern Telegraph Company, etc.
Arthur L. Shipman, of
Hartford
,
Conn.
, (William BroSmith, Robert C. Dickenson, both of
Hartford
,
Conn.
, of Counsel.)
Before MANTON,
SWAN, and A. N. HAND, Circuit Judges.
MANTON,
Circuit Judge:
The appellant
sues to impress a lien for taxes due for the years 1917 to 1922 from The
Northwestern Telegraph Company upon funds in the possession of The
Western Union Telegraph Company, which, by agreement, the latter paid to
the shareholders of the former. The shareholders were made defendants.
On
May 7, 1881
, The Western Union Telegraph Company leased the telegraph lines of The
Northwestern Telegraph Company for 99 years for which it agreed to pay a
sum of money on each share of stock, semi-annually, direct to the
individual stockholders of The Northwestern Telegraph Company. The
Western Union Telegraph Company agreed to endorse upon each certificate
of stock a promise to pay such pro rata share to each shareholder. The
appellant's claim such payments are subject to income and profit taxes
assessed against The Northwestern Telegraph Company.
The Collector
of Internal Revenue served upon The Western Union Telegraph Company
notice of a lien for the unpaid corporation income tax of The
Northwestern Telegraph Company. Such liens were filed in the District
Court Clerk's office in the Southern District of New York. This suit
followed asserting as valid, the liens upon $75,000. in the possession
of The Western Union Telegraph Company on
January 1, 1924
, for a tax of $90,000. plus penalties.
Two questions
are presented, (a) whether such payments by The Western Union Telegraph
Company to the shareholders constitute income of The Northwestern
Telegraph Company and are subject to a tax, and (b) whether the
appellant could enforce a lien upon the annual payments, for the taxes
duly assessed, against The Western Union Telegraph Company.
The appellant
cites for the proposition that the payments made to the shareholders
require payment of taxable income of The Western Union Telegraph
Company, the following: Old Colony Trust Co. v. Commr., 279 U. S.
716 [1 USTC ¶408]; Rensselaer & S. R. Co. v. Irwin, 249 Fed.
726 [1 USTC ¶15] (C. C. A. 2); Northern R. Co. of N. J. v. Lowe,
250 Fed. 856 (C. C. A. 2); West End St. Ry. Co. v. Malley, 246
Fed. 625 (C. C. A. 1);
United States
v. Looney, 29 Fed. (2d) 884 [1 USTC ¶352] (C. C. A. 5); Hamilton
v. Ky. & I. Terminal R. R. Co., 289 Fed. 20 (C. C. A. 6). But in
the view we take of this issue, we need not consider the applicability
of these authorities here.
The
appellant's position is that of a creditor seeking to recover a tax
debt. Income taxes, apart from the right of preference in payment, are
but debts. (Price v. United States, 269
U. S.
492 [1 USTC ¶158]). As against The Western Union Telegraph Company, the
appellant's rights are no better or greater than those of The
Northwestern Telegraph Company. The method of collection of this tax
indebtedness is defined by the statute. The Northwestern Telegraph
Company could not prevent The Western Union Telegraph Company from
paying the stockholders after this agreement. (Rensselaer & S. R.
Co. v. Irwin, 249 Fed. 726 [1 USTC ¶15] [C. C. A. 2].) The
shareholders are entitled to their share of the rent as provided in the
stock certificate, and can maintain an action for its payment without
joining The Northwestern Telegraph Company. (Bowers v. Interborough
Rapid Transit Co., 121 Misc. 250; Peabody v. Interborough R. T.
Co., 124 Misc. 801; 213 A. D. [N. Y.] 857; affd. 240 N. Y. 708.)
While in view
of the decision of the New York Courts just cited, the holding of the Renssalaer
case that the tax may be assessed as though a lessor had money may be
doubtful, in any event it does not follow that it can be collected on
the same hypothesis, by the claim of a lien therefor. Appellant's right
in this proceeding must be coextensive with the lessor's beneficial
interest in the payments. Unless some statute creates a special method
of relief or remedy for appellant to proceed in equity, there is no
general jurisdiction to render a decree in personam at the
instance of appellant, a creditor, directing The Western Union Telegraph
Company, either as a debtor of The Northwestern Telegraph Company or as
a trustee, to satisfy the tax indebtedness. The ordinary procedure to
enforce the rights of a judgment creditor must be followed.
The appellant
relies upon Title 26, U. S. Code, §115; R. S. §3186, which provides
for a lien for taxes "upon all property and rights to property
belonging to such person; but such lien shall not be valid as against
any * * * judgment creditor until notice of such lien shall be filed by
the collector in the office of the clerk of the district court of the
district within which the property subject to such lien is
situated." (Also Title 31, U. S. C. §192; R. S. §3467; referring
to liabilities of fiduciaries.)
Section 3186
contemplates a lien on tangible property only, personalty or realty or
estates in real or personal property which are or may be the subject of
a present sale or assignment by the delinquent taxpayer. There is no
provision in this section for the protection of a debtor of a taxpayer
who pays his debt without notice of the receipt of the assessment list.
Consequently, it would seem that the lien does not apply to a debt. The
effort here is to make The Western Union Telegraph Company, a contract
debtor of The Northwestern Telegraph Company, pay the debt after the
assessment list has been received by the Collector and without actual
knowledge or notice that it would be liable to pay the debt again to the
United States
. The statute does not authorize garnishment and it does not authorize
the
United States
to proceed against a debtor of The Northwestern Telegraph Company,
prohibiting the debtor from paying its debt to the company. Since there
is a direct liability owing by The Western Union Telegraph Company to
the shareholders to pay under the terms of the agreement in successive
installments, the lien under §3186 cannot attach to the payment of
future rents.
The provisions
applicable to fiduciaries provide that "Every executor,
administrator, or assignee, or other person, who pays any debt due by
the person or estate from whom or for which he acts" before paying
debts to the
United States
for such person or estate, is liable for the debts so due to the
United States
(R. S. §3467). But this provision is in pari-materia with §3466,
providing that whenever any person indebted to the United States is
insolvent or whenever the estate of any deceased debtor in the hands of
a fiduciary is insufficient to pay all the debts due from the deceased,
then the debts due to the United States shall be first satisfied. (United
States v. Butterworth-Judson Corp., 269
U. S.
504 [1 USTC ¶159]). And it creates no lien, either present or
continuing. (Bramwell v. United States Fidelity Co., 269
U. S.
483.) It has no application to a payment by a stranger occupying no
fiduciary capacity, as in the case of a debt due in the usual course of
business to a solvent debtor.
Indeed, the
government adduced no reason why it should be able to reach what The
Northwestern Telegraph Company never in fact had, and its right in the
proceedings should be co-extensive with that company's beneficial
interest in the payments. The Northwestern Telegraph Company had an
interest to compel payment to its shareholders but its refusal to
exercise that power would not prevent independent action by the
shareholders to compel payment. Thus unless The Northwestern Telegraph
Company had a beneficial interest in this rent paid, it is impossible
for the Government to reach it. If The Western Union Telegraph Company
is a mere debtor in any case, no trust may be created which would compel
it to hold the funds as trustee, so as to aid in the collection of
taxes.
Decree
affirmed.
