Lyman County v. Scott
| Decision Date | 14 October 1938 |
| Docket Number | 6525 |
| Citation | 281 N.W. 902,68 N.D. 596 |
| Court | North Dakota Supreme Court |
Rehearing Denied November 10, 1938.
Syllabus by the Court.
1. Under the provisions of Subdivision (a), of Section 64 of the National Bankruptcy Act, 11 U.S. C.A. § 104(a), a trustee in bankruptcy may pay personal property taxes of the bankrupt only upon the order of the bankruptcy court.
2. Where the complaint in an action against the defendant alleges that as trustee in bankruptcy he breached his duty because he failed to pay personal taxes of the bankrupt, such complaint does not state a cause of action when it fails to allege that the bankruptcy court made its order for payment of such taxes and that the defendant failed to comply therewith.
3. For reasons stated in the opinion, the lien for taxes upon personal property declared by Section 6759, of the Revised Code of South Dakota for 1919, is a lien for the purpose of distraint while the property is in the possession of the tax debtor, and an action in conversion based on such tax lien will not lie against a person through whose hands has passed property once owned by the person to whom delinquent personal taxes were charged.
Appeal from the District Court of Cass County, Englert, J.
Affirmed.
Soule & Pierce, for appellant.
There is a conversion for which trover will lie where there has been an unlawful sale of property of another by one who assumes to be the owner or acting for the owner. 26 R.C.L 1119, para. 30; Blake-McFall Co. v. Wilson, 98 Or. 626, 193 P. 902, 14 A.L.R. 1275; Moore v. Care (Tex.) 269 S.W. 75, 39 A.L.R. 1247; Goff v. Files, 133 Me. 157, 174 A. 901, 95 A.L.R. 1123; Tabour Realty Co. v. Nelson, 56 S.D. 405, 22 N.W. 807; Kelly v. Baird, 64 N.D. 346, 252 N.W. 70.
A state court has been held to have jurisdiction of an action of trover brought against a trustee or receiver in bankruptcy to recover the value of property alleged to have been converted by him as a part of the assets of the estate. 7 C.J. 258, para. 409; Re Spitzer, 130 F. 879, 66 C.C.A. 35, 12 Am. Bankr. Rep. 346; Weeks v. Fowler, 71 N.H. 518, 53 A. 633.
An action may be brought in the state courts to recover damages for wrongful acts of officers of the bankruptcy court entirely beyond their authority or duty to the prejudice of third persons. 7 C.J. 258, para. 409; Berman v. Smith, 171 F. 733, 22 Am. Bankr. Rep. 662.
It is the trustee's duty to search for taxes, and his only necessary voucher is the ordinary receipt for taxes. 6 Rem. Bankr. 405, para. 2808; Stanard v. Dayton, 220 F. 441, 33 Am. Bankr. Rep. 682; Hecox v. Teller County, 198 F. 634, 28 Am. Bankr. Rep. 525.
It is not necessary for the public authorities to appear in a court of bankruptcy as ordinary claimants. Re Kallek, 147 F. 276, 17 Am. Bankr. Rep. 415; Re Prince & Walter, 131 F. 546, 12 Am. Bankr. Rep. 679.
Shure & Murphy, for respondent.
Taxes in the state of South Dakota are not debts, and prior to 1915 were not recoverable by an action in court. Brule County v. King, 11 S.D. 294, 77 N.W. 107; Hanson County v. Gray, 12 S.D. 124, 80 N.W. 175; Hanson v. Franklin, 19 N.D. 259, 123 N.W. 386.
The payment of taxes is enforced by distress and sale of the personal property or the sale of the real property, and no action in the courts is provided for or required. Iowa Land Co. v. Douglas County, 8 S.D. 491, 67 N.W. 52; New Jersey v. Anderson, 203 U.S. 483, 51 L. ed. 482.
There is no authority for county treasurers maintaining civil actions for the collection of taxes against persons through whose hands has passed property once owned by the person to whom the delinquent personal property taxes are charged. Archambault v. Zimmerman, 50 S.D. 130, 208 N.W. 717.
There exists no duty upon the board of county commissioners in relation to the collection of delinquent taxes, and there was no authority vested in the board which it could delegate to another. Pearson v. Johnson, 59 S.D. 163, 238 N.W. 644.
This is an appeal from an order of the district court of Cass county sustaining a demurrer to the complaint.
The main facts alleged in the complaint are as follows: Prior to January 1933, the Servor Oil Company, a corporation, was doing business and had personal property in Lyman county, South Dakota. This property was assessed in said county in 1921 and 1922, but the taxes levied upon such assessments were not paid. On January 19, 1923, a petition in involuntary bankruptcy was filed against said Servor Oil Company, in the district court of the United States for the district of North Dakota, at Fargo, North Dakota, and on or about February 6, 1923, said Company was adjudicated bankrupt, and on May 20, 1923, the defendant Scott was appointed trustee in bankruptcy. That the defendant Scott, as trustee, took possession of the personal property of said Servor Oil Company and on the 17th day of September, sold the same, but failed to pay the taxes due and delinquent thereon.
That under § 6759, of the Revised Code of South Dakota for 1919, the plaintiff, Lyman county, has a first lien upon said personal property of the Servor Oil company upon which the taxes involved were assessed and levied. Said § 6759 provides as follows:
The complaint alleges four causes of action. Two of such causes of action are predicated on breach of duty on the part of the defendant as trustee in bankruptcy of the Servor Oil Company in that he failed to pay the personal property taxes assessed upon the property of said bankrupt for the years 1921 and 1922; and two causes of action are based upon conversion of such personal property upon which the plaintiff claims to have lien for the years 1921 and 1922, and failure to pay the taxes thereon for said years.
Copies of said § 6759 of the Revised Code of South Dakota for 1919, the Tax Laws of South Dakota, and of § 64, subds. (a) and (b) of the Federal Bankruptcy Act, as amended on May 27th, 1926, 11 U.S.C.A. § 104 (a) (b), are attached to the complaint as exhibits, and by stipulation of the parties to the action are to be considered by the court as part of the complaint.
The defendant demurred to the complaint, among others, upon the following grounds:
"That the complaint does not state facts sufficient to constitute a cause of action in this that the plaintiff pleads mere conclusions and has not stated a cause of action under the bankruptcy act or sufficient facts to constitute a cause of action for conversion."
The district court entered its order sustaining the demurrer and the case is here on appeal from such order.
We shall first consider plaintiff's cause of action alleging breach of duty under the Federal Bankruptcy Act. The plaintiff's complaint alleges that the defendant was duly elected and appointed trustee in bankruptcy of the Servor Oil Company, bankrupt, in the district of the United States of America for North Dakota and thereafter duly qualified as such trustee and immediately entered upon the discharge of his duties as trustee in bankruptcy, took over the personal property belonging to the bankrupt and became vested with the legal title thereto. The complaint further alleges that the defendant knew at the time of his appointment and qualification as trustee and ever since has known that the taxes levied upon the property of said bankrupt were unpaid, and that during his administration of said bankruptcy estate he wholly failed to pay said taxes, although required to pay the same under and by virtue of the Federal Bankruptcy Act of July 1st, 1898, as amended, and that the estate has been formally closed and wound up and the assets distributed to creditors and that the defendant, as such trustee, failed to pay the taxes assessed and levied upon the property of said bankrupt.
Subdivisions (a) and (b) of § 64, of the Federal Bankruptcy Act, as amended on May 27th, 1926, are attached to the complaint as exhibit "D" and made a part thereof. That part of subdivision (a), of said § 64, applicable here, provides as follows: "The court shall order the trustee to pay all taxes legally due and owing by the bankrupt to the United States, State, county, district, or municipality, in the order of priority as set forth in paragraph (b) hereof: . . ."
It will be observed that the statute quoted provides that the court shall order the trustee to pay all taxes due and owing by the bankrupt, etc. It is clear, therefore, that it is the mandatory duty of the bankruptcy court to order the trustee to pay taxes according to the priority prescribed by the statute, and it is equally clear that the trustee cannot pay taxes except upon order of the bankruptcy court. "The trustee can pay taxes only on an order of the court of bankruptcy; but it is the mandatory duty of the court of bankruptcy to order the trustee to pay taxes according to the priority prescribed by the statute; . . ." 8 C.J.S. § 454, p. 1334.
Section 64 of the Bankruptcy Act, supra, invests the court with power to determine the legality and priority of taxes levied upon property of bankrupts. No order for the payment thereof can be made by the court until such taxes have been found to be a legal charge upon the assets of the bankrupt. We quote from 8 C.J.S., § 454, p. 1332: ...
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