Bensinger v. Davidson, 17179.

• Decision Date: 18 December 1956
• Docket Number: No. 17179.,17179.
• Citation: 147 F. Supp. 240
• Parties: Virginia S. BENSINGER, Plaintiff, v. John R. DAVIDSON, United States of America, Defendants.
• Court: U.S. District Court — Southern District of California

147 F. Supp. 240

Virginia S. BENSINGER, Plaintiff, v. John R. DAVIDSON, United States of America, Defendants.

No. 17179.

United States District Court S. D. California, Central Division.

December 18, 1956.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Robert N. Richland and Martin Perlberger, Beverly Hills, Cal., for plaintiff.

Laughlin E. Waters, U. S. Atty., Edward R. McHale, Asst. U. S. Atty. Chief, Tax Division, Robert A. Wyshak and Andrew J. Weisz, Asst. U. S. Attys., Los Angeles, Cal., for defendant, the United States.

JAMES M. CARTER, District Judge.

This case raises two principal questions (1) what property rights are affected by a government tax lien, and (2) what is the nature and extent of the right of a vendee, under a conditional sales contract covering real property, to recover for unjust enrichment.

The action, commenced in the state court, was denominated an action for "declaratory relief." It was removed by the government to this court on the ground that it was in substance an action to quiet title against a lien claimed by the United States, on real property, 28 U.S.C.A. § 2410, and that jurisdiction existed by virtue of the government's removal, 28 U.S.C.A. § 1444, Wells v. Long, 9 Cir., 1947, 162 F.2d 842.

Bensinger, the owner and vendor of real property, seeks to quiet title to the property against a claim of lien for delinquent federal income taxes owed by a conditional vendee. Obviously the lien could have no effect on the owner's title had the conditional sales contract never existed. The existence and history of the conditional sales contract create our problems.

On April 25, 1952, Bensinger, owner of a house and lot in Bel Air, California, entered into a conditional sales agreement with Mr. and Mrs. John A. Purcell, whereby the Purcells agreed to purchase the property for $69,500 with legal title reserved to the vendor by the contract until the purchase price was paid. Purcells made a down payment of $10,000 and were to pay the balance at the rate of $1,200 a month. The Purcells were in possession of the property from May 1, 1952 until January 29, 1953, and made six monthly payments totaling $7,200. The Purcells thus made total payments of $17,200. On January 29, 1953, after default, the Purcells surrendered possession of the property to Bensinger, and on January 31, 1953, entered into an agreement with her acknowledging default and releasing her from any and all obligations, for a consideration in the sum of $1,500 paid to Purcells. At the same time the Purcells delivered a quit-claim deed to the property to Bensinger.

Prior to any of this, and on September 7, 1951, a notice of tax lien in the sum of $9,846.36 plus accruing penalties and interest due the United States of America from John A. Purcell for income taxes, had been filed in the office of the County Recorder, Los Angeles County. The lien had arisen when the assessment list was received by the Collector of Internal Revenue on June 18, 1951, showing an assessment of $14,835.36. Credits reduced that amount to the sum shown above.

Purcells had recorded the conditional sales contract and the assertion by the government of the lien led to this action.

On March 24, 1953, Bensinger entered into an agreement to sell the property to one Fox, and an escrow was opened. In order to secure the release of the government lien (as well as other liens not here involved) and complete the sale, Bensinger entered into a written agreement with the United States by which the lien was released from the real property, and by agreement transferred to the sum of $12,000 on deposit in the escrow without prejudice to the rights of the parties as thereafter determined.

I

Purcells had a property right to which the Government lien attached.

The assessment of the unpaid taxes against John A. Purcell resulted in "a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." Internal Revenue Code of 1939, § 3670, 26 U.S.C.A. 1939 ed. § 3670. "* * * The lien shall arise at the time the assessment list was received by the collector * * *." Internal Revenue Code of 1939, § 3671, 26 U.S.C.A. 1939 ed. § 3671. This occurred on June 18, 1951. On filing of the notice of tax lien with the County Recorder on September 7, 1951, the world had notice thereof, Section 3672, Internal Revenue Code of 1939, 26 U.S.C.A. 1939 ed. § 3672, Investment & Securities Co. v. United States, 9 Cir., 1944, 140 F.2d 894.

Such a lien attaches to after-acquired property, Salsbury Motors, Inc., v. United States, 9 Cir., 1954, 210 F.2d 171, certiorari denied 347 U.S. 953, 74 S.Ct. 679, 98 L.Ed. 1099; Glass City Bank of Jeanette, Pa. v. United States, 1945, 326 U.S. 265, 66 S.Ct. 108, 90 L. Ed. 56; Citizens Nat. Trust & Savings Bank of Los Angeles v. United States, 9 Cir., 1943, 135 F.2d 527.

The right of the United States to collect taxes is not subject to state law, Metropolitan Life Insurance Co. v. United States, 6 Cir., 1939, 107 F.2d 311, 313, certiorari denied 310 U.S. 630, 60 S.Ct. 978, 84 L.Ed. 1400, but state law may control on what it considers or creates as property, Metropolitan Life Insurance Co. v. United States, supra; See, E. & J. Gallo Winery v. C. I. R., 9 Cir., 1955, 227 F.2d 699, 705.

We have no doubt that a conditional sales contract involving real estate is property under California law. It is a well known animal in the legal menagerie of the state. Section 3306, California Civil Code, sets forth the measure of damages for a breach of an agreement to convey real property, and Section 3307, Civil Code, the measure of damages for breach of an agreement to purchase real property. Section 655, Civil Code, provides "In What Property May Exist. There may be ownership * * * of all obligations * * *". When the Purcells on April 25, 1952, entered into the conditional sales agreement or more aptly, an agreement for the sale and purchase of real estate, they had a property right, certainly, in the contract, and we think an equitable interest in the land.¹

When Purcells, after paying $17,200, defaulted and later surrendered possession on January 29, 1953, they had a potential cause of action for unjust enrichment against Bensinger, Freedman v. Rector, etc., of St. Mathias Parish, 1951, 37 Cal.2d 16, 230 P.2d 629, 31 A.L.R.2d 1; Barkis v. Scott, 1949, 34 Cal.2d 116, 208 P.2d 367. Whether they could or not recover depended on the factors we hereafter discuss.

The lien of the government for unpaid taxes does not limit itself to tangible property. It is a broad and comprehensive lien, attaching to all of the taxpayer's property except that which may be specifically exempted, Citizens State Bank of Barstow, Tex. v. Vidal, 10 Cir., 1940, 114 F.2d 380, 382. In the last cited case it attached to a claim for work, labor and materials, and defeated a subsequent assignment of the claim to the appellant bank. In Glass City Bank of Jeanette, Pa. v. United States, 1945, 326 U.S. 265, 66 S.Ct. 108, 90 L.Ed. 56, the lien attached to money due the taxpayer for fees as a state receiver and defeated a subsequent attachment — execution from the state court. In Investment & Securities Co. v. United States, 9 Cir., 1944, 140 F.2d 894, the lien attached to a claim for recovery of moneys paid on corporate assessments and defeated a subsequent assignment thereof.

A chose in action² is property under California law, Civil Code, § 14 (3). Causes of action for Tort have been held to be property, Carver v. Ferguson, Cal.App.1953, 254 P.2d 44, Finley v. Winkler, 1950, 99 Cal.App.2d Supp. 887, 222 P.2d 345. A fortiori, a cause of action for unjust enrichment is property.

This cause of action grew out of Purcells' rights created by the conditional sales contract. As we demonstrate later, it is the practice in California to use the quiet title action as one method to cut off any rights of the conditional vendee and in such an action, plaintiff's relief may be denied unless he does equity to the conditional vendee, i. e., unless he refunds to the conditional vendee, the amount by which the plaintiff vendor has ben unjustly enriched.

As between herself and the Purcells, Bensinger could have eliminated the Purcell interest by agreement or quitclaim deed. This she attempted to do. She could not in such manner cut off or eliminate the government's lien, Metropolitan Life Insurance Co. v. United States, 107 F.2d at page 313.

We conclude that the government lien attached to Purcells' cause of action for unjust enrichment. See, 41 Cal.L.Rev. 1953 241, 245, "Federal Tax Liens."

II

The extent of the government's lien.

The problems created by the situation of a defaulting vendee's attempt to avoid a forfeiture of monies paid, or the vendee's claim that the vendor is being unjustly enriched, have been considered by California cases.³

The problems arise in various situations: For example, (1) the vendor's suit to quiet title, Nelson v. Dangerfield, 1954, 125 Cal.App.2d 146, 269 P.2d 953; Petersen v. Ridenour, 1955, 135 Cal.App.2d 720, 287 P.2d 848, where the court will refuse relief unless the vendor refunds the excess of the part payments over the damage caused by vendee's breach, Barkis v. Scott, 1949, 34 Cal.2d 116, 120-121, 208 P.2d 367.

(2) Actions by the vendor for damages for breach of contract by vendee, Royer v. Carter, 1951, 37 Cal.2d 544, 233 P.2d 539; Fellner v. Steinbaum, 1955, 132 Cal.App.2d 509, 282 P.2d 584.

(3) Action by the vendee to rescind the contract and for recovery of money paid to the vendor, Bird v. Kenworthy, 1954, 43 Cal.2d 656, 277 P.2d 1; Furst v. Scharer, 1953, 119 Cal.App.2d 605, 260 P.2d 198.

(4) Actions for declaratory relief, Major-Blakeney Corp. v. Jenkins, 1953, 121 Cal.App.2d 325, 263 P.2d 655.

(5) Actions by the vendor to recover the down payment, Norris v. San Mateo County Title Co., 1951, 37 Cal.2d 269, 231 P.2d 493.

(6) Actions by the vendee to recover amounts paid under...