Heinemann Chemical Co. v. United States, 6255.

• Decision Date: 27 September 1937
• Docket Number: No. 6255.,6255.
• Citation: 92 F.2d 302
• Parties: HEINEMANN CHEMICAL CO. et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — Third Circuit

92 F.2d 302 (1937)

HEINEMANN CHEMICAL CO. et al. v. UNITED STATES.

No. 6255.

Circuit Court of Appeals, Third Circuit.

September 27, 1937.

J. M. Magee, of Pittsburgh, Pa., John E. Hughes, of Chicago, Ill., and Edmund W. Arthur, of Pittsburgh, Pa., for appellants.

James W. Morris, Asst. Atty. Gen., and Sewall Key, Norman D. Keller, and S. Dee Hanson, Sp. Assts. to Atty. Gen., for the United States.

Before BUFFINGTON, DAVIS, and BIGGS, Circuit Judges.

DAVIS, Circuit Judge.

This is an appeal from a judgment on a bond in favor of the United States.

At the time of filing its income tax return for 1918, the Heinemann Chemical Company, one of the appellants here, filed a claim for abatement of $23,174.51 of the tax assessed against it on the ground that it had sustained a substantial loss for the taxable year and gave its bond for $46,350 with the American Surety Company, the other appellant here, as surety, "conditioned for the payment of any part of such tax found to be due, with interest," at the rate of 12 per cent. per annum. The Commissioner found that the $23,174.51 covered by the claim for abatement was due, and the chemical company paid it, but not the interest.

The chemical company then wrote to the collector of internal revenue at Pittsburgh, stating that it had been carrying for some years the bond for $46,350 and said: "We have now paid the amount of the obligation you claim down to less than $10,000.00, as we understand it. Wish to ask if in the light of this condition the bond cannot be reduced and thereby obtain the payment of a less premium." The collector replied on September 14, 1928, and, among other things, said:

"You advise you have paid the tax, and have reduced the claim to less than $10,000.00. You, therefore, request this office to advise whether or not the bond would be reduced.

"In this connection you are advised, that an examination of the records of this office discloses that you have paid the tax, and that the obligation outstanding against you at the present time represents interest.

"You are further advised that you substituted for the bond this office now holds another bond in the penal sum of $10,000.00, representing interest outstanding on the 1918 income tax liability, account number XXXXXX — 1919 list.

"When the new bond is substituted the surety company will be informed that they are released of their obligation on the old bond."

On September 29, 1928, the chemical company wrote the collector as follows:

"In accordance with your letter of the 14th inst., your file IT:JHG, we are enclosing you herewith Bond of the American Surety Company in the penal sum of Ten Thousand Dollars ($10,000.00) to guarantee our liability to the Government under account #XXXXXX, 1919 list. Upon receipt of this Bond will you please return to us in the enclosed envelope the Bond which you have held to date in the penal sum of a much larger amount.

"In order to clear our files of this matter we will esteem it a favor if your can return the Bond requested, promptly on receipt of this."

The collector on October 3, 1928, answered the above letter saying:

"Reference is made to Surety Bond furnished by the American Surety Company of New York, assured by you assuring the payment of income tax for the year 1918.

"You are advised that the tax assessed is paid in full and a new Bond in the penal sum of $10,000.00 was received under date of September 29, 1928, assuring the payment of all interest due.

"Since the tax has been paid, and the above mentioned bond assures the payment of the interest, the bond in the penal sum of $46,350.00 is released. The American Surety Company of New York, has been advised that the liability has been completely satisfied."

On the same day the collector wrote to the surety company, saying:

"Reference is made to Bond given by you assuring payment of income Tax for the year 1918, for Heinemann Chemical Company, Olean, N. Y.

"The tax for the above mentioned year has been paid in full, and a new bond in the penal sum of $10,000.00 has been received to cover the interest due and payable on the above mentioned account.

"In view of the premises, your liability on the bond furnished by you under date of June 4, 1919, in the penal sum of $46,350.00 has ceased. The Heinemann Chemical Company has been advised that the liability has been completely satisfied."

For reasons not here material, the interest was not paid by the chemical company or surety company, and on May 19, 1932, the United States brought suit on the bond for $46,350 against both of them for $20,208.59, the amount claimed to be due as interest, with interest from that date until paid. The appellants defended on the ground that the collector "released" this bond and no right of action thereon remained in the United States. The United States contends that the collector had no authority to release the bond and consequently it still stood and suit could be brought on it. The District Court sustained the contention of the United States and entered judgment against the appellants. The principal and surety appealed from that judgment.

The real question is whether or not the collector, under the facts in this case, had authority to release the original bond for $46,350. If he did, the court erred for the collector did as a fact release the bond, and the question is whether or not he exceeded his authority.

Appellants say that the authority of the collector to release the bond was admitted in the pleadings and that the issue of the collector's authority could not be raised at the trial or here.

In their affidavit of defense the appellants alleged as new matter that the bond "was by agreement of the parties hereto rescinded and discharged and a new bond dated the 27th day of September 1928, in the sum of $10,000 was substituted for said bond." The appellee filed no reply to this allegation. Section 6 of the Practice Act of Pennsylvania of May 14, 1915, as amended by Act March 30, 1925, P.L. 84, § 2 (12 P.S.Pa. § 387), provides that every allegation of new matter...