Domenech v. Lee, 2779.

• Decision Date: 05 June 1933
• Docket Number: No. 2779.,2779.
• Citation: 66 F.2d 31
• Parties: DOMENECH, Treasurer, v. LEE.
• Court: U.S. Court of Appeals — First Circuit

66 F.2d 31 (1933)

DOMENECH, Treasurer, v. LEE.

No. 2779.

Circuit Court of Appeals, First Circuit.

June 5, 1933.

William Cattron Rigby, of Washington, D. C. (Fred W. Llewellyn and Kyle Rucker, both of Washington, D. C., and Charles E. Winter, Atty. Gen., San Juan, Puerto Rico, on the brief), for appellant.

J. Edmund Kelly, of Buffalo, N. Y. (Rann, Vaughan, Brown & Sturtevant and Noel S. Symons, all of Buffalo, N. Y., on the brief), for appellee George L. Squier Mfg. Co.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

BINGHAM, Circuit Judge.

This is an appeal from a decree of the federal District Court for Puerto Rico sitting in bankruptcy. It was found in the court below that the George L. Squier Manufacturing Company, intervener, a New York corporation with its principal place of business in the city of Buffalo, N. Y., sold to the Central San Miguel, the bankrupt, a sugar factory located on a parcel of land in Puerto Rico having an area of 20 cuerdas, and, to secure the purchase price, the Central San Miguel gave to the manufacturing company a mortgage covering the property, which mortgage was duly recorded November 13, 1926; that of the sum secured by the mortgage there remained due $222,000, principal, and interest at 6 per cent. on $111,000 of the principal from July 1, 1929, and interest at 8 per cent. per year on the remaining $111,000 from July 1, 1929; and, in addition thereto, the sum of $6,000 stipulated in the mortgage to cover costs, disbursements, and counsel fees in the foreclosure of the mortgage; that the principal sum, by the terms of the mortgage and the laws of Puerto Rico, was further increased by the payment of taxes assessed against the bankrupt upon the real estate for the fiscal years 1928-29, 1929-30, and 1930-31, amounting to the sum of $27,901.51, which the manufacturing company paid on May 14, 1931, the bankrupt having failed to do so.

It further appeared that on June 23, 1931, a petition in bankruptcy was filed in the federal District Court for Puerto Rico against the Central San Miguel, and that, on that date, the District Court, at the instance of the petitioning creditors, issued an order staying, among other suits, a foreclosure proceeding brought by the manufacturing company to foreclose the mortgage, and staying attachments or notices of sales announced for the 25th of June, 1931, by Manuel V. Domenech, treasurer of Puerto Rico, for the sale of the real estate for taxes assessed against the bankrupt and claimed to be due, amounting to $26,081.83, and also ordering the custodian of the property in the insular District Court of Humacao forthwith to deliver the same to the receiver in bankruptcy, including property of every kind whatsoever of which he had possession as such custodian; that on July 3, 1931, Domenech, the treasurer of Puerto Rico, filed a petition (called a motion) in the District Court to set aside its order of June 23, 1931, staying the sale of real estate to satisfy the taxes, and the receiver and the George L. Squier Manufacturing Company filed an answer (called an opposition) to the petition. In the petition it was alleged that the Central San Miguel, the bankrupt, owed the people of Puerto Rico for taxes assessed upon its personal property for the years 1928-29 and 1929-30 the sum of $1,955.22; for taxes by way of workmen's relief premiums for the years 1928-29 to and including 1930-31, the sum of $4,501.86; for corporation income taxes for the year 1927 the sum of $4,326.25; for taxes for interest which the bankrupt owed and paid the George L. Squier Manufacturing Company and to the Puerto Rico International Corporation for 1927, 1928, and 1929, and which it should have withheld at its source, the sum of $8,779.84; and for excise taxes for the years 1928-29 and 1929-30, the sum of $6,518.66 — making a total of $26,081.83; that these taxes were a prior lien on all the property of the taxpayer; that the treasurer of Puerto Rico, in pursuance of law, had at two different times in 1930 and 1931 given notice of an attachment of the land for the purpose of selling the same and advertising said taxes, and in May, 1931, had authorized the giving of a notice of attachment of 200 bags of sugar in the possession of Central San Miguel and the seizure thereunder of 199 bags of sugar by the collector on June 5 and 6, 1931; that the court, as above stated, had, on June 23, 1931, enjoined the sale of the real estate by the treasurer as well as other suits in the insular District Court; that the notices of attachments fulfilled all the requirements of law; that the District Court was without jurisdiction to restrain the treasurer from making a sale of the property; and prayed the court to set aside its order of June 23, 1931.

In the answer the George L. Squier Manufacturing Company denied all the material allegations contained in the petition of the treasurer of Puerto Rico, and, among other things, denied the amount of the taxes, that they were due, and that they were prior liens to the mortgage lien which it held, on all the property or any of the property of the bankrupt. It alleged that it appeared from the motion that, during the years 1928-29 and 1929-30, the bankrupt had personal property in excess of $4,000, and that, according to the provisions of sections 336 and 339 of the Political Code of Puerto Rico, the alleged attachments were void and created no lien or right superior to the lien of the intervener; that the people of Puerto Rico had no lien whatsoever for taxes that accrued for the personal property and excise taxes; that the people of Puerto Rico likewise had no lien or right whatever prior and superior to the lien of the intervener on the land in question for income taxes or for workmen's relief premiums; that the intervener, by virtue of its mortgage of August, 1926, held a lien on the real property in question prior and superior to any lien of the people of Puerto Rico; that it had paid the people of Puerto Rico the taxes assessed on the real estate, amounting to $27,901.51; and that, on June 12, 1931, it had instituted foreclosure proceedings on the mortgage against the bankrupt in the District Court of Humacao; and prayed for an order denying the petition of the treasurer of Puerto Rico.

While the controversy raised by the motion and opposition was pending, the intervener, the Squier Manufacturing Company, obtained leave of the District Court to foreclose its mortgage in the insular court by filing a bond in the sum of $30,000 "to secure the payment of all taxes alleged to be due by the bankrupt in the motion * * * as would be found to be actually due and to have constituted a lien on the bankrupt's real property prior and paramount to the mortgage of said George L. Squier Manufacturing Company." This was done pursuant to an agreement of the parties; the bond being in effect substituted for the real estate about which the controversy arose.

A hearing in the above matter having been had before the District Court on May 16, 1932, upon a stipulation of facts dated September 29, 1931, and other evidence, the District Court on May 26, 1932, found that on the date of the filing of the petition, July 3, 1931, "the following taxes were due and owing by the bankrupt to The People of Porto Rico: (a) For taxes assessed and levied on the personal property of the bankrupt for the fiscal years 1928-29 and 1929-30, including surcharges, the sum of $1,955.22; (b) For premiums assessed and levied for the Workmen's Relief Commission for the fiscal years 1928-29 to 1930-31, inclusive, including surcharges, the sum of $4,501.86; (c) For income taxes assessed and levied on the income of the bankrupt for the year 1927, including surcharges, the amount of $4,326.25; (d) For excise taxes assessed and levied on the bankrupt for the manufacture of sugar for the years 1928-29 and 1929-30, including surcharges, the sum of $6,518.66" — a total amount of $17,301.99, that being the difference in the amount of taxes claimed by the treasurer of $26,081.83 and the sum of $8,779.84 claimed to be due and to be withheld by the bankrupt at the source. In other words, the District Court disallowed that sum. It also found that the bankrupt commenced the manufacture and had actually produced sugar since the year 1927 each year during the months of January to June up to and including the year 1931; that, after deducting 65 per cent. of the sugar manufactured, which belonged to the colonos, the bankrupt had and actually owned during the years in question the following amounts: For 1927-28, 45,909.50 quintals; for 1928-29, 37,849 quintals; for 1929-30, 34,349.70 quintals; and for 1930-31, 22,953.70 quintals; and it otherwise appeared that the price of sugar for each of the last two years was $3 per quintal or per a hundred pounds, showing that for the year 1930 the bankrupt had personal attachable property in sugar of the value of $192,900 and for 1931 of the value of $68,700, this being the year in which the attachments of the real property or notices of sale thereof were made; that the bankrupt's schedule of personal property dated October 27, 1931, showed personal property consisting of office furniture, chains for cane, materials for laboratory, goods and repairing tools, and a tractor Ford, of a value in excess of $12,000; that for the year 1931 the bankrupt had molasses which it had produced amounting to about $2,000, and always had warehouse supplies on hand of from $5,000 to $6,000; and that on December 8, 1931, the real estate in question was sold in the foreclosure proceeding to the intervener for the sum of $100,000, which sum was credited to the principal and interest due it and the amount of the real estate taxes which it had paid.

The District Court, having made its findings of fact, ruled: (1) That the so-called attachments made by the treasurer in July, 1930, and April, 1931, to collect the taxes in question were void and did not constitute a lien upon the...