Massachusetts Bonding & Ins. Co. v. United States

• Decision Date: 29 June 1938
• Docket Number: No. 8706.,8706.
• Citation: 97 F.2d 879
• Court: U.S. Court of Appeals — Ninth Circuit
• Parties: MASSACHUSETTS BONDING & INS. CO. v. UNITED STATES.

97 F.2d 879 (1938)

MASSACHUSETTS BONDING & INS. CO. v. UNITED STATES.

No. 8706.

Circuit Court of Appeals, Ninth Circuit.

June 29, 1938.

Joe Crider, Jr., and Clarence B. Runkle, both of Los Angeles, Cal., for appellant.

James W. Morris, Asst. Atty. Gen., Sewall Key, Norman D. Keller, and E. E. Angevine, Sp. Assts. to Atty. Gen., and Ben Harrison, U. S. Atty., E. H. Mitchell, Asst. U. S. Atty., and Eugene Harpole, Sp. Atty., Bureau of Internal Revenue, all of Los Angeles, Cal.

Before DENMAN, MATHEWS, and HEALY, Circuit Judges.

DENMAN, Circuit Judge.

This is an appeal by the Massachusetts Bonding and Insurance Company from a judgment against it in an action brought by the United States to enforce the defendant's liability on a surety bond. Principal on the bond was Harry H. Culver. The bond was given to secure the payment of a tax deficiency by Culver to the United States. It is admitted that Culver defaulted on the bond.

Appellant does not question entry of judgment against it for the face amount of the bond, plus interest at the legal rate on California judgments from date of demand. Its appeal is from a judgment in excess of that amount.

Culver as principal and appellant as surety executed the bond pursuant to § 274(k), Revenue Act of 1926, 44 Stat. 55, as amended by § 502 of the Revenue Act of 1928, 45 Stat. 869:

"Where it is shown to the satisfaction of the Commissioner that the payment of a deficiency upon the date prescribed for the payment thereof will result in undue hardship to the taxpayer the Commissioner * * * may grant an extension for the payment of such deficiency or any part thereof. * * * If an extension is granted, the Commissioner may require the taxpayer to furnish a bond in such amount, not exceeding double the amount of the deficiency * * * conditioned upon the payment of the deficiency in accordance with the terms of the extension. In such case there shall be collected, as a part of the tax, interest on the part of the deficiency the time for payment of which is so extended, at the rate of 6 per centum per annum for the period of the extension. * * * If the part of the deficiency the time for payment of which is so extended is not paid in accordance with the terms of the extension, there shall be collected, as a part of the tax, interest on such unpaid amount at the rate of 1 per centum a month for the period from the time fixed by the terms of the extension for its payment until it is paid, and no other interest shall be collected on such unpaid amount for such period."

On December 31, 1930, the taxpayer was indebted to the United States in the amount of $30,115.11 for deficiencies in taxes for prior years. Under the above statute he applied for and was granted by the Commissioner an extension to pay these deficiencies until February 15, 1932, conditioned upon his giving bond in the penal amount of $36,390.00.

We quote the material portions of the bond.

"Income and Profits Tax Bond

"Under Section 274(k) of the Revenue Act of 1926, as amended by Section 502 of the Revenue Act of 1928

"Know All Men by These Presents, That Harry H. Culver * * * as principal, and Massachusetts Bonding and Insurance Company * * * as surety, are held and firmly bound unto the United States of America in the sum of Thirty Six Thousand Three Hundred Ninety dollars ($36,390.00) * * *.

"Whereas, there is due from the above-bounden principal certain additional income or profits taxes resulting from a deficiency in tax (not due to negligence or to fraud with intent to evade tax);

"Whereas, to exact payment of the deficiency in tax at this time will result in undue hardship to the above-bounden principal;

"Whereas, section 274(k) of the Revenue Act of 1926 as amended by section 502 of the Revenue Act of 1928 provides that the Commissioner, with the approval of the Secretary, may extend the time for the payment of such deficiency in tax, or any part thereof, for such period as may be considered necessary not in excess of thirty months, and provides further that the Commissioner may require the taxpayer to furnish a bond with sufficient sureties conditioned upon the payment of the deficiency in accordance with the terms of the extension granted; and

"Whereas, it appears that the amount of this bond is sufficient to cover the deficiency of tax plus penalty and interest:

"Now, therefore, the condition of the foregoing obligation is such that if the principal shall on or before the 15th day of February, 1932, pay such deficiency in tax found to be due by the Commissioner, plus penalty and interest, in accordance with the terms of the extension as herein stated, and shall otherwise well and truly perform and observe all the provisions of law and the regulations;

"Then this obligation is to be null and void, but otherwise to remain in full force, virtue, and effect."

On February 15, 1932, the expiration of the extension period, taxpayer Culver failed to pay the principal amount of the deficiency plus the 6 percent interest required for the duration of the extension period. Nor has he at any time since then paid this obligation.

On November 15, 1933, the Commissioner of Internal Revenue for the first time gave notice of this default to the appellant surety. Payment was not forthcoming from appellant and this action was begun.

The plaintiff demanded the sum of $33,867.45, being the amount of the extended deficiency, plus interest at 6 percent for the period of extension, together with interest at the rate of 1 percent per...