Annotations- Property of
Another
6332 Annotations: Property
of Another- Levy
Penalty
for Failure to Surrender Property: Property of Another
[54-1 USTC ¶9222]The Colorado Milling
& Elevator Company, a Corporation, Plaintiff v. S. R. Glenn, as
Collector of Internal Revenue; The United States of America;
Koehler-Spalding Co.; Koehler Brokerage Co.; The Lincoln Bank &
Trust Company; B. G. Wholesale Co.; Bottom Bernard Company; Oscar Brown
& Sons; L. S. Cherry Co.; Danville Wholesale Grocery Co.; Durham
Grocery Co.; Economy Wholesale Co.; Frankfort Grocery Co.; The Great A
& P Tea Co.; D. G. Hayes Grocery Co.; Jellico Grocery Co.; Logan
Murray Grocery Co.; Otter & Co., Inc.; Richardson Grocery Co.;
Raymond Sales Co.; H. Runyan & Sons, Inc.; Vaughn Grocery Co.; W. T.
Young Foods, Inc.; Bass Salvage Co.; Raymond-Johns Distributing Co.,
Defendants
In
the District Court of the United States for the Western District of
Kentucky at Louisville, Civil Action No. 2490, 118 FSupp 943, January
25, 1954
Distraint: Levy on proceeds of goods sold on consignment:
Jurisdiction.--Taxpayer received goods on consignment under an
arrangement pursuant to which it sold the goods to customers for an
amount covering the base price payable to the consignor plus the
additional amount charged by taxpayer for handling, storage and
commission. Deficiencies were assessed against taxpayer, and the
collector distrained consigned goods, taxpayer's bank account in which
the proceeds of sales were deposited, and also the amounts owed to
taxpayer by purchasers of the consigned goods. The consignor brought
suit on the ground that taxpayer had acted as its agent and that the
consigned goods and the proceeds of sale belonged to the consignor. The
court held that it had jurisdiction, even though the amount in
controversy exceeded $10,000, inasmuch as it involved claims of title to
property seized by the
United States
. However, the goods and the accounts in question were the property of
the taxpayer under the arrangement between it and the consignor, and,
therefore, were subject to distraint.
William H.
Abell, Ogden, Galphin & Abell, Marion E. Taylor Building,
Louisville, Ky., for plaintiff. H. Brian Holland, Assistant Attorney
General, Andrew D. Sharpe, Frederic G. Rita, Special Assistants to the
Attorney General, Washington, D. C., Charles F. Wood, Assistant United
States Attorney, Louisville, Ky., for defendants.
Findings
of Fact and Conclusions of Law
SHELBOURNE,
District Judge:
This action
was filed October 21, 1952, by The Colorado Milling & Elevator
Company against S. R. Glenn, Collector of Internal Revenue, The United
States, Koehler-Spalding Company, Koehler Brokerage Company, Lincoln
Bank & Trust Company and numerous other firms and persons and
concerns, all of whom were indebted to Koehler-Spalding Company on
invoices of beans or peas which they had purchased but had not paid for
at the time a warrant of distraint issued by the Collector was served
upon them.
Jurisdiction
of the action was claimed under Section 1340, Title 28 U. S. Code, the
United States
being made a party under the provisions of Section 2463 of Title 28 U.
S. Code, the complaint alleging that consent to such suit against the
United States
is granted by Section 2410 Title 28.
[Levy
Upon Goods Held on Consignment]
In substance,
the complaint alleged that the plaintiff hereinafter referred to as
"Colorado" and defendant Koehler-Spalding Company, hereinafter
referred to as "Koehler-Spalding" entered into an agreement
about September 15, 1951, under which Colorado agreed to and did consign
bulk and packaged beans and peas to Koehler-Spalding at Louisville and
that the latter agreed to sell the beans and peas on behalf of
Koehler-Spalding at prices fixed by Colorado; that Koehler-Spalding was
to receive compensation sufficient to care for storage, handling,
selling and invoicing, and out of the proceeds of sales of the
merchandise was to pay Colorado the base price fixed by Colorado in
advance of the sales by Koehler-Spalding, which represented a. f. o. b.
Louisville price to be received by Colorado; that thereafter, in August
1952, the Collector of Internal Revenue served a jeopardy assessment
against Koehler-Spalding for an amount in excess of $190,000, as
delinquent income taxes against Koehler-Spalding, under which jeopardy
assessment the Collector on August 26, 1952, seized and distrained the
beans and peas in storage at Koehler-Spalding's plant in Louisville and
various accounts and bank deposits belonging to Colorado and applied the
money and merchandise so seized to the payment of the delinquent income
taxes due by Koehler-Spalding.
Colorado
claimed that the Collector had no right to levy upon the merchandise or
money and accounts and sought by the complaint a judgment requiring the
Collector to pay forthwith to Colorado all sums which he had collected
from the debtors of Koehler-Spalding from the Lincoln Bank & Trust
Company and sought an additional recovery in damages of $2,256.68.
[Defenses]
The answer of
the Collector and of the
United States
denied the material allegations of the complaint and set up two
affirmative defenses: 1. That the Court was without jurisdiction of the
United States
, because
Colorado
's demand exceeded $10,000, and that under Section 1340 of Title 28 U.
S. Code,
Colorado
's forum, if any, was in the Court of Claims. 2. That the complaint
failed to state a cause of action upon which relief could be granted.
The
Collector's first affirmative defense was that all of the monies
received by him under the jeopardy assessment or distraint warrant had
been covered into the Treasury of the
United States
prior to the institution of this action, in accordance with Section
3971(a) of the Internal Revenue Code.
The case was
tried to the Court without a jury September 3, 1953.
Counsel for
plaintiff and defendants
United States
and the Collector have filed briefs and suggested findings of fact and
conclusions of law. The Court makes the following findings of fact and
conclusions of law, separately stated:
Findings
of Fact
1. Plaintiff,
The Colorado Milling & Elevator Company, is a corporation created
under the laws of the State of
Colorado
. Defendant Koehler-Spalding Company is a corporation created under the
laws of the State of
Kentucky
and doing business at
Louisville
,
Kentucky
.
2. About
September 15, 1951,
Colorado
and Koehler-Spalding entered into an agreement, by which
Colorado
consigned dried beans and peas to Koehler-Spalding, which the latter
agreed to sell from its
Louisville
plant where it maintained warehouses and elevators.
From the time
the agreement became effective until sometime in January 1952,
Koehler-Spalding reported to Colorado sales and invoices for such sales
made in the name of Colorado and the customer remitted directly to
Colorado.
In January
1952, the arrangement was changed so that Koehler-Spalding invoiced the
sales to the purchasers in the name of Koehler-Spalding, the price of
the sales being--first a base price furnished by
Colorado
to Koehler-Spalding and referred to in the evidence in this case as the
base price f. o. b.
Louisville
which
Colorado
was to receive from each sale. Second, an additional amount representing
the amount due Koehler-Spalding to compensate it for storing, handling
and selling the merchandise. At the end of each day, Koehler-Spalding
would report to
Colorado
the total sales made that day and
Colorado
in turn billed Koehler-Spalding for that day's aggregate sales. The
proceeds of all sales, when received by Koehler-Spalding from the
customers, were deposited by Koehler-Spalding in its general checking
account in the Lincoln Bank & Trust Company at
Louisville
.
There is no
evidence in this case as to any unconditional guaranty by
Koehler-Spalding of the solvency of any customers to whom it sold
merchandise consigned to it by Colorado and in making payment to
Colorado, Koehler-Spalding remitted by check drawn on its general
banking account in the Lincoln Bank & Trust Company at Louisville.
No special
account was maintained by Koehler-Spalding for the deposit of the
proceeds of sales of merchandise and no system of accounting has been
filed in the evidence by which the Court could ascertain in the amount
of any particular sale the portion thereof due Koehler-Spalding and the
portion thereof due Colorado.
The accounts
of Koehler-Spalding with its customers, to whom it sold the beans and
peas consigned to it by
Colorado
, were kept in the same manner as other accounts of Koehler-Spalding
with other wholesalers and manufacturers from whom it obtained
merchandise which it sold.
3. On or about
August 1, 1952, the Commissioner of Internal Revenue assessed against
Koehler-Spalding deficiencies of income taxes for the years 1942 to 1946
inclusive, aggregating $192,418.56. The assessment lists covering these
assessments were received by the defendant Glenn as Collector of
Internal Revenue at
Louisville
,
Kentucky
, on August 4, 1952.
On or about
August 26, thereafter, notice of the assessments and demand for payment
were made upon Koehler-Spalding and when payment was not made, warrants
of distraint issued and on August 26, 1952, notices of the levy under
the warrants of distraint were served upon the Lincoln Bank & Trust
Company, Louisville, and upon the following persons and business
concerns to whom Koehler-Spalding had sold beans and peas consigned to
it by Colorado and who were indebted to Koehler-Spalding, as appeared on
its books, in the following amounts:
Name Amount
B. G. Wholesale Co. ............... $2,375.77
Bottom Bernard Co. ................ 956.63
Oscar Brown & Sons ................ 325.82
L. S. Cherry Co. .................. 10.44
Danville Wholesale Grocery Co. .... 165.85
Durham Grocery Co. ................ 301.45
Economy Wholesale Co. ............. 579.00
Frankfort Grocery Co. ............. 426.68
The Great A. & P. Tea Co. ......... 723.75
D. G. Hayes Grocery Co. ........... 1.806.61
Jellico Grocery Co. ............... 55.80
Dyche Jones Food Stores, Inc. ..... 94.00
Kentucky
Food Stores .............. 1,280.92
Louisville Grocery Co. ............ 472.40
Logan Murray Grocery Co. .......... 1,174.50
Otter & Co., Inc. ................. 42.00
Richardson Grocery Co. ............ 68.75
Raymond Sales Co. ................. 61.09
H. Runyan & Sons, Inc. ............ 1,323.59
Vaughn Grocery Co. ................ 102.29
W. T. Young Foods, Inc. ........... 1,114.00
Bass Salvage Co. .................. 125.80
Raymond-Johns Distributing
Co.
............................... 10.44
Upon the
demand of the Collector, the above persons and firms paid the amounts of
their respective indebtedness and the Lincoln Bank & Trust Company
paid to the Collector the sum of $28,000.
4. Promptly,
upon receipt of the payments of said various amounts and in accordance
with the requirements of Section 3971(a) of the Internal Revenue Code,
Glenn, as Collector, covered said payments into the Treasury of the
United States.
5. Thereafter,
and on September 15, 1952, Colorado demanded of the Collector $5,538.58
out of the $28,000 bank account, which the Lincoln Bank & Trust
Company had paid to the Collector as the amount of the checking account
of Koehler-Spalding and also demanded of the Collector $13,597.58 of the
amounts received by the Collector from the debtors of Koehler-Spalding,
claiming that the $5,538.58 of Koehler-Spalding's bank account and
$13,597.58 of its accounts represented the proceeds of sales of
merchandise which Koehler-Spalding had sold as the agent or factor of
Colorado.
6.
Colorado
has not established in this action, by evidence satisfactory to the
Court, that $5,538.58 of the $28,000 bank account of Koehler-Spalding in
the Lincoln Bank & Trust Company, represented the base price f. o.
b.
Louisville
, which Koehler-Spalding had agreed to pay
Colorado
for merchandise. Their claim in this respect is based upon the
"first in, first out" theory and was thus stated by
Colorado
's chief accountant A. K. McClelland:
"The
opening balance of the Koehler-Spalding account on August 1st was
$10,716.97. During the month of August, or before August 26th, there
were deposits to the total amount of $71,656.74, which with the opening
balance made a total of $82,373.71, total funds available in August.
Against that, the Lincoln Bank & Trust Company honored checks in the
total amount of $53,830.31 remaining in the bank.
"Taking
the total amount of cash available, beginning with the opening balance
and listing deposits in sequence on the dates they were made and taking
the assumption that the last deposits made were those still remaining in
the bank, using the first-in, first-out basis, it required the opening
balance and all of the deposits through the 15th and a portion of the
deposit made on the 18th to cover the $53,543.40 in checks that were
honored by the bank--to cover the exact amount to be required, $4,359.36
of the $7,483.04, that would have left of this deposit of the 18th,
$3,124.58 that was not required to cover checks honored by the bank
during the month of August.
"To
develop the first-in, first-out basis, as to the funds of the Colorado
Milling and Elevator Company which were included in these deposits, I
divided the $576.01,
Colorado
funds for August 18th in exactly the same proportion as the total
deposit had to be divided in order to cover the total checks which were
honored by the bank. On that basis, $335.52 of the $576.01 would have
been used in honoring the checks which were paid by the bank and there
would have been left $240.49 of that deposit, which on the first-in,
first-out basis would still have remained in the bank on August 26th and
to the firm's account and the deposits made from there after that time
through August 26th on a first-in, first-out basis would still have
remained in the bank on August 26th. The total funds in the bank were
$28,830.31 and the amount of the Colorado Milling Company's funds
developed on the basis I have outlined were $5,538.58."
7. The amount
of the twenty-three accounts, aggregating $13,597.58, which Colorado
seeks to recover represents not only the amount which Koehler-Spalding
owed to Colorado, as the base price f. o. b. Louisville for the beans
and peas, but includes the additional amount which Koehler-Spalding
charged the purchasers for handling, storing and commission.
Conclusions
of Law
I. The Court
has jurisdiction of the parties and the subject matter under Section
1340, Title 28 U. S. Code.
It is claimed
by the
United States
that the Court is without jurisdiction because plaintiff's claim is in
excess of $10,000, and that this Court's jurisdiction under the Tucker
Act, Title 28 U. S. Code, Section 1346(a)(2) is limited to claims not
exceeding $10,000.
In Stuart
v. Chinese Chamber of Commerce of
Phoenix
, 168 Fed. (2d) 709 [48-2 USTC ¶9315], the Court said:
"From
early date the Supreme Court has held that district courts having
jurisdiction of property taken or detained by revenue officers under
authority of any revenue law of the United States, are given power to
decide claims of title and to award to the rightful owner possession of
the property seized. * * *
"We
have been unable to discover, and have been apprised of no procedure
prescribed either by the regulations or the code whereby a third party
claimant, not a taxpayer, may reclaim property unlawfully seized or
restrained, and since this is not an action to recover a tax alleged to
have been erroneously assessed or collected, the Collector could not
subject the appellants to the necessity of filing a full claim for
refund under section 3772 of the Internal Revenue Code. In that event, a
demand putting the Collector on notice of the appellees' position and
apprising him of the amounts and the reason for their respective claims
should be sufficient."
See also Glenn
v. American Surety Company, (C. A. 6) 160 Fed. (2d) 977 [47-1 USTC
¶9220], and In Re Fassett, 142
U. S.
479.
II. The beans
and peas levied on by the Collector, the bank account in the name of
Koehler-Spalding and the accounts sought to be recovered by the
plaintiff were the property of Koehler-Spalding.
There can be
no doubt that the original arrangement between Colorado and
Koehler-Spalding contemplated that the latter would act merely as the
agent or factor of Colorado in the sale of the beans and peas, and had
the conduct of the parties been in accordance with the plan, no
confusion would have resulted, but as said by the Court in In Re
Wells, 140 Fed. Rep. 752:
"There
is no particular magic in the term 'consigned' or 'consigned account.'
In a sense all goods shipped to another are consigned to him. The
question is what was the inherent character of the transaction, which
depends upon the purpose of it. Were the goods put in the hands of the
one party by the other, to be sold for him and on his account, creating
the relation of principal and factor; or were they turned over to such
party, to be treated and disposed of as his own, being responsible to
the other simply for the price? In the one case we have a trust or
bailment, the goods throughout being those of the consignor or
principal, as well as the moneys received for them. In the other there
is a sale; the superadded condition, sometimes appearing, that the title
shall not pass until the goods are paid for, amounting to nothing as a
restriction upon it."
In the case of
In Re Wells, supra, the Court quotes with approval from 24
American & English Encycl. Law (2d Ed.) 1026, the following:
"If,
however, the consignee or factor is to sell upon terms fixed by himself,
and is bound to pay to the consignor a fixed price, the contract is one
of sale."
In Taylor
v. Fram et al. (C. A. 2), 252 Fed. Rep. 465 (469) it is held that an
agreement of which creditors do not have constructive notice, which
reserves title to a consignor who nevertheless and contrary to the terms
of the agreement permits the consignee to make sales and deposit the
proceeds of sales in his general bank account and use them for his own
purposes, does not entitle the consignor to claim proceeds of the sales
as principal against his consignee as agent.
III. The
arrangement as contemplated by the parties in September 1951 and January
1952, as reflected by the letters from Koehler-Spalding to
Colorado
, indicates an intention to establish the relationship of principal and
agent. The expressions, however, in contracts are not conclusive of
relationships that arise between parties as a result of the method of
transacting business actually conducted between them.
Courts will
ignore language of a contract which is at variance with the conduct of
the parties pretending to act under the contract. City of
Owensboro
v. Dark Tobacco Growers Association, 222
Ky.
164.
It is
concluded that the action of the Collector in subjecting the property
assessed under the distraint warrant to the payment of the tax liability
of Koehler-Spalding was proper, for the reason that the property
assessed was property of the taxpayer and the claim of Colorado to be
the owner of the property or entitled to the bank account, or any part
thereof, or to the accounts assessed by the Collector should be
dismissed.
A judgment is
accordance with these findings and conclusions here made will be
submitted by Counsel for the defendants, on notice to plaintiff's
Counsel.
[55-2 USTC ¶9605]Brinker Supply
Company, a corporation, Plaintiff v. Edward C. Dougherty, District
Commissioner of Internal Revenue, and Raymond S. Kraft, Acting Director
of Internal Revenue, Successors to Stanley Granger, Collector of
Internal Revenue, Defendants
In
the District Court of the United States for the Western District of
Pennsylvania, No. 1738 Miscellaneous, 134 FSupp 384, June 30, 1955
[1939 Code Sec. 3690--similar to 1954 Code Sec. 6331(a)]
Levy and distraint: Another's property: Leased equipment.--The
Collector of Internal Revenue had no right to levy on the construction
equipment in the possession of the delinquent taxpayer but leased from
plaintiff. The warrants of distraint issued by the Collector were
quashed.
Ralph E.
Smith, Economy Bank Bldg., Ambridge, Ra., for plaintiff. John W.
McIlvaine, United States Attorney, 600 New Federal Bldg., Pittsburgh,
Pa., for defendants.
Opinion
and Order
Opinion
MARSH,
District Judge:
This case is
before the court on the application of Brinker Supply Company to quash
certain warrants of distraint 1 issued by
the Collector of Internal Revenue.
At the outset
it should be noted that this court has jurisdiction to entertain this
proceeding, and in the attending circumstances, we think it can be
disposed of summarily. Raffaele v. Granger, 196 Fed. (2d) 620 (3d
Cir. 1952) [52-1 USTC ¶9321]; Rothensies v. Ullman, 110 Fed.
(2d) 590 (3d Cir. 1940) [40-1 USTC ¶9308].
There is no
dispute that on January 22, 1952, an agent of the Collector, acting
under the authority of certain warrants of distraint issued by the
Collector in September, 1951 and in January, 1952, levied on certain
items of road building machinery in the possession of the delinquent
taxpayer, Kline & Schmidt, Inc., a corporation of Monaca,
Beaver County
,
Pennsylvania
. Immediately following the levy, the proponent, Brinker Supply Company,
notified the defendant Collector of its interest in the chattels and
demanded possession. The Collector refused to relinquish possession.
After filing
its motion to quash, the plaintiff submitted an affidavit made and
verified by Fred C. Brinker, Secretary of Brinker Supply Company.
[Equipment
Leased]
This affidavit
alleged the following facts: On March 26, 1951, the Brinker Supply
Company leased to Kline & Schmidt, Inc., four items of equipment
which are the subject of the Collector's distraint. The lease created a
bailment on a weekly basis. The rental was $150.00 per week which was to
be paid by the bailment lessee Kline & Schmidt, Inc. This bailment
lease contained no option to purchase the items. Upon default by the
lessee, the lessor retained the right to immediately repossess the
leased property. Following the seizure of the property by the Collector,
the lessee refused and did fail to pay the weekly rental. At no time did
the Brinker Supply Company bargain, sell or in any way transfer to Kline
& Schmidt, Inc., any of the items seized by the defendant Collector.
The
Collector's reply consisted of unsworn and unverified statements that
the taxpayer-lessee had an equity in the property when it was seized. In
addition he attached copies of three separate bailment lease contracts
and a conditional sales contract, each contract purporting to cover one
of the four items covered by the lease of March 26, 1951, relied upon by
Brinker Supply Company.
The first of
these contracts bears the date of October 2, 1947, and purports to be a
bailment lease with an option to purchase. It was signed "Brinker
Supply Company, Inc." and "Lawrence A. Schmidt". The
second is dated April 27, 1948. This purports to be a bailment lease
with an option to purchase like the first. This is signed "Brinker
Supply Company, Inc., by Fred C. Brinker" and "L. A.
Schmidt". The third, dated June 13, 1949, and also purporting to be
a bailment lease with an option to purchase, was signed "Brinker
Supply Company, Inc., By C. H. Brinker, Pres." and "Kline
& Schmidt By Charles M. Kline". The fourth and final document
is dated August 3, 1949. This purports to be a conditional sales
agreement. This document is signed "Brinker Supply Company By F. C.
Brinker, Treas." and "Kline & Schmidt By L. A.
Schmidt". 2
It is apparent
that none of these contracts were signed by the taxpayer Kline &
Schmidt, Inc., as was the contract of March 26, 1951. The latter was
clearly signed for the corporation by "L. A. Schmidt, Sec'y and
Treas." This makes the four documents which the opponent of the
application has produced res inter alios acta. There is no
allegation even in the answer to the motion that the signator of any of
the contracts purported to sign for the corporation. Neither is there
any allegation that "Kline & Schmidt" was "Kline
& Schmidt, Inc." Since the Collector has had more than
sufficient time to reply, it appears to the court that said Collector is
unable to raise either a material issue of fact or a valid defense. 3 Therefore,
on this issue alone, an order quashing the warrants is proper.
[Property
of Another]
But even if
the Collector could succeed in convincing this court that the documents
were not res inter alios acta, he would still be faced with
establishing his claim to any of the property held by the taxpayer under
the bailment lease. It is too well established for dispute that the
Collector's distraint 4 is only
valid against the property of the taxpayer. The property of no other can
be so taken to satisfy the taxpayer's obligation. 5 Raffaele
v. Granger, supra; 9 Mertens, Law of Federal Income Taxation §49.163
(1943). It follows irresistably that the bailor's or lessor's interest
cannot be so seized, but rather only the possessory interest of the
bailee or lessee. The bailor's or lessor's reversion is vested in him
for the duration of the lease, and the present enjoyment of the
reversion revests according to the terms of the contract. In the
contract concerned, such revesting occurs when the bailment lessee
defaults in his payments. It is undisputed that all of the equipment
concerned was possessed under such a condition. Therefore, when the
Collector seized the property, he had only the bailment lessee's
interest--the present enjoyment--and when the bailment lessee defaulted
this interest was lost to him and, therefore, to the Collector. This is
the law of
Pennsylvania
; Scott, Law of Bailments 44ff. (1931); and it is this law which
determines the quantum of the taxpayer's property in the chattels
distrained. Raffaele v. Granger, supra.
As has been
noted, since the bailment lease of the four pieces of equipment involved
covered the same pieces as were covered by the earlier bailment leases
and conditional sale, and since the bailor or lessor in the former was
the same as the bailor or lessor and conditional vendor in the latter,
we may assume that no title passed under the latter contracts at any
time prior to the execution of the former. For to say otherwise in the
absence of facts would be to presume that the proponent did not own the
property in the face of his sworn statement that he did.
These
considerations all lead to the conclusion that the case does not present
any issue of fact and that as a matter of law all the interest of the
taxpayer terminated upon its default if it had any interest in the
chattels at all. Therefore, there is no property in the chattels which
can properly be subjected to distraint by the Collector for the tax
liability of the taxpayer Kline & Schmidt, Inc. No purpose will be
served by hearing testimony and a decision on the merits granting the
relief sought is in order. See: Sauters v. Young, 118 Fed. Supp.
361 (W. D.
Pa.
1954). Accordingly, the warrants will be quashed and all security given
by the proponent in lieu of the chattels seized will be released.
An appropriate
order will be entered.
Order
of Court
AND NOW,
to-wit, this 30th day of June, 1955, it is ordered that the warrants of
distraint of September 27, 1951 and January 28, 1952, respectively, as
they pertain to
1--3-5
ton
Buffalo
Springfield
Roller.
1--10
ton 3 Wheel Roller No. 7107 Huber
1--8-10
ton Tandem Roller No. 5-T316 Huber
1--M-B-P610
Power Grader No. 448-5
be
and the same hereby are quashed.
It is further
ordered that Clerk of this Court return to Brinker Supply Company any
and all security posted by it in lieu of the specific goods and chattels
aforementioned.
1 26 U. S. C.
§3690 (1952).
2 It is
interesting to note that under the terms of the alleged contracts, final
performance under any of them would have been due in November, 1950.
3 Hearings
were held on December 19, 1952 and September 29, 1954. Neither party at
either hearing offered any testimony or any additional pertinent or
relevant matter.
4 Distraint
has been defined as "[t]he taking of a chattel from the possession
of a wrongdoer or obligor to enforce the performance of an
obligation." 27 C. J. S. Distraint.
5 There
appears to be no dispute concerning the tax liability of the taxpayer or
the facts relating to the issuance of the warrants. Moreover, it appears
that the distraint when made was entirely proper because the taxpayer,
admittedly, had rightful possession of the chattels at the time. The
default occurred only after distraint.
[57-1 USTC ¶9423]
United States of America
, Plaintiff v.
Enterprise
Plumbing and Heating Company, Inc., Defendant
U.
S. District Court, Dist. N. J., Civ. No. 1014-54, 2/7/57
[1939 Code Sec. 3710--similar to 1954 Code Sec. 6332]
Collection of taxes: Levy and distraint: Taxpayer's property in hands
of another: Burden of proof.--The Collector of Internal Revenue
issued warrants of distraint for withheld federal income taxes and
Federal Insurance Contributions Act taxes allegedly due for 1949 and
1950. When the taxes remained unpaid, warrants of distraint and notice
of levy were served on defendant directed to a sum of money due from the
defendant to the taxpayer. Demand for payment was not honored and this
suit was brought to recover judgment against the defendant in a sum
equal to the value of the property or rights belonging to the taxpayer.
The defendant denied that it had funds due and owing to the taxpayer.
The Court decided in favor of the defendant and against the Collector on
the ground that the latter had not sustained the burden of proving by a
fair preponderance of evidence not only taxpayer's liability for the
taxes but also defendant's indebtedness to taxpayer and that it was
actually in possession of funds due and payable to the taxpayer.
Raymond Del
Tufo, Jr., United States Attorney,
Federal
Building
,
Newark
, N. J., for plaintiff. Antonio R. Cioffi,
113 North Fourth Street
,
Camden
, N. J., for defendant.
Findings
of Fact and Conclusions of Law
SMITH,
District Judge:
This is a
civil action in which the plaintiff seeks a judgment against the
defendant "in a sum equal to the value of property or rights to
property belonging to the Standard Sheet Metal Company." The claim
here asserted is predicated primarily on the tax liability of the
Standard Sheet Metal Company, which liability is not disputed. It is
alleged that there is in the possession of the defendant certain sums
owed by it to the Standard Sheet Metal Company and subject to distraints
and levies heretofore made. This allegation is denied. Therefore, the
only issue presented for determination is a narrow issue of fact.
Facts
I The
Commissioner of Internal Revenue, between April of 1949 and August of
1950, filed assessments against the Standard Sheet Metal Company for the
taxes due for the first and fourth quarters of the year 1949 and the
first and second quarters of the year 1950, to wit, withholding taxes
due under the pertinent provisions of the Internal Revenue Code of 1939,
28 U. S. C. A. 1621, et seq., and employment taxes due under the Federal
Insurance Contributions Act of 1939, 28 U. S. C. A. 1400, et seq. The
taxes assessed, together with interest and penalties thereon, were in
the total amount of $5,162.65. The assessments were not honored by the
taxpayer and the taxes were not paid.
II The
Collector of Internal Revenue, pursuant to the authority vested in him
by statute, issued warrants of distraint on June 13, 1949, March 22,
1950 and June 15, 1950. When the taxes remained unpaid the Collector of
Internal Revenue, on July 25, 1950, served upon the defendant copies of
the warrants for distraint and a notice of levy. The notice of levy was
apparently directed to the sum of $4,877.33 allegedly due from the
defendant to the taxpayer under a certain contract. The notice of levy
was not honored for reasons hereinafter discussed.
III
Thereafter, on February 6, 1952, the Collector of Internal Revenue
served upon the defendant a final notice and demand for payment. The
demand for payment was not honored. An additional notice of levy and
demand for payment were served upon the defendant on June 12, 1953, at
which time there was due and owing from the taxpayer taxes, together
with interest and penalties thereon, in the amount of $6,122.30. The
defendant again refused to honor the notice of levy and demand for
payment. The present action followed.
Discussion
The defendant
does not dispute either the liability of the taxpayer or the facts thus
far recited. The defendant denies, however, that it is in possession of
funds due and owing the taxpayer; it denies any indebtedness to the
taxpayer. The burden is therefore upon the plaintiff to prove by a fair
preponderance of the evidence not only the liability of the taxpayer to
the plaintiff but also the defendant's indebtedness to the taxpayer. The
burden is upon the plaintiff to prove that the defendant is actually in
the possession of funds due and payable to the taxpayer. The plaintiff
has failed to sustain this burden; in fact, the evidence offered by the
plaintiff leaves much to be desired and fails to overcome the
defendant's denial of its indebtedness to the taxpayer.
Conclusions
I This Court
has jurisdiction of the subject matter and the parties.
II The
plaintiff has failed to sustain the burden of proof cast upon it by law.
III The
defendant is entitled to a judgment in its favor.
[60-1 USTC ¶9320]
United States of America
v. American Textile Machine Corporation and Paul Kent
U.
S. District Court, Middle Dist. Tenn., Nashville Div., Civil No. 1399,
2/23/60
[1939 Code Sec. 3710--similar to 1954 Code Sec. 6332]
Property: Levy: Surrender: Penalty.--Since the defendant
corporation was actually insolvent at the time of the levy against its
tax-delinquent creditor, and since the individual defendant caused the
corporation to pay to the Government, pursuant to the levy, cash far
exceeding the amount of cash which the corporation had on the date of
the levy, there is no personal liability against either defendant.
Distraint for taxes applies only to the property of the delinquent
taxpayer itself.
Fred Elledge,
Jr., United States Attorney, and R. Hunter Cagle, Assistant United
States Attorney, United States Court House,
Nashville
3,
Tenn.
, for plaintiff. Judson Harwood,
Nashville
Trust
Building
,
Nashville
3,
Tenn.
, for defendant.
Finding
of Facts and Conclusions of Law
MILLER,
District Judge:
Pursuant to
the memorandum opinion filed in this cause on September 13, 1956, this
cause came on for further hearing in order to give the plaintiff an
opportunity to offer proof that the American Textile Machine Corporation
was solvent at the time the levy was served on defendant, Paul Kent.
Finding
of Facts
From the
additional evidence offered, the Government has failed to establish that
the American Textile Machine Corporation was solvent and able to pay its
debts at the time of the levy in this cause. The evidence in fact
establishes that the said American Textile Machine Corporation was not
solvent and was not able to pay its debts at the time of the levy and
the defendant Paul Kent did not willfully ignore said levy, but on the
contrary made or caused to be made very substantial payments on the
taxes of Hold Stitch Machine Company by American Textile Machine
Corporation subsequent to said levy said payments far exceeding the cash
on hand of American Textile Machine Corporation at the time of the levy.
Conclusions
of Law
The only
"property or right to property" contemplated by Section
3710--(I. R. C. 1939) are such as where the holder's payment or transfer
thereof to the Collector will operate to discharge the holder's
liability to the owner. (U. S. v. Penn Mutual Life Insurance Co.,
130 F. 2d 495 [42-2 USTC ¶9623].)
Since American
Textile Machine Corporation was obligated to Hold Stitch only for money,
it could not transfer property other than money to the Government and
thereby be relieved of its obligation to Hold Stitch.
Since the
American Textile Machine Corporation was actually insolvent at the time
of the levy and since defendant, Paul Kent caused American Textile
Machine Corporation to pay to the Government pursuant to said levy, cash
far exceeding the amount of cash which American Textile Machine
Corporation had on the date of said levy there is no personal liability
against Paul Kent or his estate.
An order
dismissing this cause will be entered.
Order
In accordance
with the finding of facts and conclusions of law filed in this cause
this suit against Paul Kent's estate is hereby dismissed.
Amended
Order (2/26/60)
The order
entered February 23, 1960, dismissing this suit against Paul Kent's
Estate, is hereby amended to include the dismissal of this suit against
American Textile Machine Corporation in conformity with the Findings of
Fact and Conclusions of Law entered on the same date.
It is,
therefore, accordingly Ordered that this suit against American Textile
Machine Corporation be, and the same is, hereby dismissed.
[59-2 USTC ¶9745]Herberts-Princess
Stores, Incorporated v. Southern Realty Corporation, et al.
United States of America
v. Dress-Eteria Shops, Inc., et al.
U.
S. District Court, East. Dist. Va., Richmond Div., Civil Action Nos.
2647, 2880, 8/31/59
[1954 Code Sec. 6332]
Collection of tax: Surrender of property subject to levy: Property in
custody of court.--The court determined that of the $4,374.99 paid
into the court by a sublessee, $2,457 was payable to one co-lessor (a
corporation) and its attorneys, $1,836 was payable to the other
co-lessor and her attorneys, and $81.99 was payable to the United
States. The
United States
was granted a $100,323.67 judgment against the lessee which had assigned
its interest in the lease, but had reserved an increased rental.
Arthur B.
Daniel, 118 South 6th Street, Richmond, Va., for Dresseteria Shops, Inc.
Marshall Lowenstein, 516 American Building, Richmond, Va., for Southern
Realty, Harry Schrieberg, Mutual Building, Richmond, Va., for
Herberts-Princess, etc., Oscar Lager, Henry Koplov, t/a Collins.
Stanley
Keeter, Assistant
United States
Attorney,
Richmond
,
Va.
, for
United States
.
Order
HUTCHESON,
District Judge:
This day came
the parties, by counsel, except the defendant, Elkay, Incorporated, said
defendant being in default and not represented by counsel, upon the
papers previously filed, the stipulations and admissions of the parties,
by counsel, and the motions for summary judgment in each case on behalf
of Southern Realty Corporation and Florence Maupin, after reasonable
notice to all parties, and upon the motion of The United States of
America, by Shanley Keeter, Assistant United States Attorney, for leave
to file an amended complaint, and was argued by counsel,
On
consideration whereof, the Court doth ADJUDGE AND DECREE THAT:
1. The above
styled cases, relating to the same subject matter and involving the same
parties, have been previously consolidated for hearing by agreement of
counsel and by the Court, on February 12, 1959.
2. The
preposed amended complaint, which The United States of America moves
leave to file, does not state a new cause of action; said motion of The
United States of America is denied.
3. There is no
genuine issue as to any material fact and the motions for summary
judgment in each case are, therefore, granted.
[Facts]
4. Southern
Realty Corporation and Florence Maupin are the owners of certain
premises leased to Dress-Eteria Shops, Incorporated (hereinafter called
Dresseteria).
5.
Dresseteria, assigned its rights in said premises to Oscar Lager and
Henry Koplow, trading as Collins, Portsmouth, Virginia, conveying its
whole term in said premises but reserving an increased rental; the
leasehold was further assigned to Herberts-Princess Stores,
Incorporated, all prior to April 1, 1957.
6. On April 1,
1957, Herberts-Princess Stores, Incorporated, was served with notice of
levy of The United States of America on any funds due Dresseteria.
Thereafter, on April 28, 1959, Herberts-Princess Stores, Incorporated,
paid the monthly installment for April, 1957, to Southern Realty
Corporation for distribution to Florence Maupin and Dresseteria, and
subsequently paid into the registry of this Court the monthly rental
installments due for the months of May, June and July, 1957. The monthly
installment for March, 1957, had been paid on March 28, 1957.
7.
Herberts-Princess Stores, Incorporated defaulted in the payment of rent
(May, June and July), which was owed by it to the defendants, Southern
Realty Corporation and Florence Maupin, the defendant, Dresseteria,
being secondarily liable therefore. Under the terms of the leases,
Herberts-Princess was in default and Southern Realty Corporation and
Florence Maupin terminated their leases for non-payment of rent.
8. The
defendant, Southern Realty Corporation, shall recover and have judgment
against the plaintiff, Herberts-Princess Stores, Incorporated, in the
sum of $2,100.00 (being the rent reserved for the months of May, June
and July, 1957) plus legal interest thereon from July 1, 1957 to
November 1, 1957, and the further sum of $315.00 on account of
attorney's fees.
9. The
defendant, Florence Maupin, shall recover and have judgment against the
plaintiff, Herberts-Princess Stores, Incorporated, in the sum of
$1,800.00 (being the rent reserved for the months of May, June and July,
1957) plus legal interest thereon from July 1, 1957 to November 1, 1957.
10. The
balance of the funds paid into the registry of the Court is owing to the
United States of America
, by virtue of its tax lien against Dresseteria.
11. The
United States of America
shall have judgment against Dresseteria, in the amount of $100,323.67,
with interest from September 6, 1951, less and except the sum of $81.99.
12. That the
allegations of the United States asserting personal liability against
the parties defendant in Civil Action No. 2880 are dismissed with
prejudice.
[Conclusion]
Wherefore, the
Court both order that the Clerk of this Court do check upon the fund of
$4,374.99 paid into the registry of the Court herein in the amounts and
to the parties, as follows:
(1) To
Southern Realty Corporation and Dervishian, Lowenstein and Dervishian,
its attorneys: $2,457.00.
(2) To
Florence Maupin and Dervishian, Lowenstein and Dervishian, her
attorneys: $1,836.00.
(3) To the
Treasurer of The
United States
: $81.99.
[65-1 USTC ¶9218]
United States of America
, Appellant v. Bernard Stoumen, Appellee
(CA-3),
U. S. Court of Appeals, 3rd Circuit, No. 14926, 340 F2d 321, 1/28/65,
Affirming District Court decision, 64-1 USTC ¶9437
[1939 Code Sec. 3710--similar to 1954 Code Sec. 6332]
Levy and distraint: Third party not subject to levy.--Since a
brother was not indebted to his deceased brother's estate, he was not
subject to a levy by the Government to satisfy the estate's unpaid tax
liability for the years 1943-1945.
Ralph A.
Muoia, Department of Justice,
Washington
, D. C. 20530, for appellant. W. Bradley Ward, Schnader, Harrison, Segal
& Lewis, 1719 Packard Bldg., Philadelphia, Pa., for appellee.
Before BIGGS,
Chief Judge, and KALODNER ANDSMITH, Circuit Judges.
Opinion
of the Court
PER CURIAM:
An examination
of the record in this case discloses no error. The findings of fact and
conclusions of law filed by the court below are correct. The judgment
will be affirmed.
[55-2 USTC ¶9626]
United States of America
, Plaintiff v. Peoples Savings Bank and Trust Company of
Wilmington
, N. C., Defendant
In
the United States District Court for the Eastern District of North
Carolina, Wilmington Division, Civil No. 579, July 19, 1955
[1939 Code Sec. 3710(a)--substantially unchanged in 1954 Code Sec.
6332(a)]
