Karno-Smith Co. v. Maloney
| Decision Date | 17 June 1940 |
| Docket Number | No. 7261.,7261. |
| Citation | 112 F.2d 690 |
| Parties | KARNO-SMITH CO. v. MALONEY, Collector of Internal Revenue. |
| Court | U.S. Court of Appeals — Third Circuit |
Ellis L. Pierson, of Trenton, N. J., for appellant.
Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, J. L. Monarch, and Fred J. Neuland, Sp. Assts. to the Atty. Gen., and William F. Smith, Acting U. S. Atty., and Thorn Lord, Asst. U. S. Atty., both of Trenton, N. J., for appellee.
Before BIGGS, MARIS, and CLARK, Circuit Judges.
On October 21, 1931, Karno-Smith Company, a corporation engaged in the general contracting business and the plaintiff in this suit, entered into a contract with the New Jersey State House Commission for the construction of a public building. On November 16, 1931, the plaintiff entered into a contract with New Jersey Brick & Supply Co., Inc., to furnish the granite for the building. The Supply Company, in turn, purchased the granite from the Cold Spring Granite Company. The granite was furnished by the Granite Company and actually went into the public building.
Pursuant to the provisions of the New Jersey Act of Feb. 16, 1918 (Laws of 1918, pp. 203-205, now R.S. 2:60-207 to 2:60-211 incl.,1 N.J.S.A. 2:60-207 to 2:60-211 incl.), the plaintiff gave a bond conditioned upon payment for all materials furnished in the construction.
The Supply Company became insolvent and failed to pay the Granite Company for the granite furnished by the latter, and on September 3, 1932, the Granite Company notified the plaintiff by letter that there was a balance due it from the Supply Company and that the plaintiff should withhold the sum of $5,456.26 which it owed the Supply Company under its contract until further advice.
The Supply Company also owed the United States for income taxes for the years 1930 and 1931, and on February 28, 1932, a warrant for distraint was served upon the Supply Company for the balance of its 1930 tax. On September 10, 1932 a notice of tax lien was recorded in the office of the clerk of Mercer County, New Jersey. On September 12, 1932, the plaintiff was served with a notice by the collector of internal revenue that all property and rights to property then in its possession and belonging to the Supply Company and all sums of money owing from the plaintiff to the Supply Company were seized, levied and demanded in payment of the said tax for 1930 due from the Supply Company. On February 21, 1933, a similar notice was served on the plaintiff with respect to the taxes of the Supply Company for 1931. The plaintiff failed to comply with these demands and on September 18, 1933, final notices and demands were served upon the plaintiff with respect to both years.
Meanwhile on May 2, 1933, the First-Mechanics National Bank of Trenton obtained a judgment in the New Jersey Supreme Court against the Supply Company in the amount of $855.62, and on May 8, 1933 caused a writ of execution to be issued and levy made upon the rights, credits and moneys due to the Supply Company from the plaintiff. A rule to show cause why the plaintiff should not pay the bank's judgment was discharged by the court. First Mechanics' Nat. Bank of Trenton v. New Jersey Brick & Supply Co., 112 N.J.L. 218, 171 A. 176. On July 14, 1933 the plaintiff agreed to pay and the Granite Company agreed to accept the sum of $5,456.27 in full satisfaction of the Granite Company's claim under the bond.
On February 27, 1934, the plaintiff pursuant to the notices and demands served upon it by the collector paid to him under protest the amounts levied, with interest, and costs, $2,415.55 in all. Claims for the refund thereof having been filed and disallowed the plaintiff brought the present suit in the District Court for the District of New Jersey to recover the amount paid. The District Court entered a judgment of nonsuit. 28 F.Supp. 907. The present appeal followed.
The demands of the collector in this case were made pursuant to the provisions of Section 1114(e) of the Revenue Act of 1926, the pertinent provisions of which now appear as Section 3710(a) of the Internal Revenue Code (26 U.S.C.A. Int.Rev.Code, § 3710(a) as follows: "Any person in possession of property, or rights to property, subject to distraint, upon which a levy has been made, shall, upon demand by the collector or deputy collector making such levy, surrender such property or rights to such...
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...in contract proceeds in the hands of the contractor is reduced by the total amount of such claims. Singleton cites Karno-Smith Co. v. Maloney, 112 F.2d 690 (3rd Cir.1940), in support of this In Karno-Smith, the court determined that under New Jersey law a contractor had a right of setoff ag......
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