NORTHUMBERLAND CTY. v. PHILADELPHIA AND READING C. & I. CO.

• Decision Date: 05 November 1942
• Docket Number: No. 7980.,7980.
• Citation: 131 F.2d 562
• Parties: NORTHUMBERLAND COUNTY et al. v. PHILADELPHIA AND READING COAL & IRON CO.
• Court: U.S. Court of Appeals — Third Circuit

131 F.2d 562 (1942)

NORTHUMBERLAND COUNTY et al. v. PHILADELPHIA AND READING COAL & IRON CO.

No. 7980.

Circuit Court of Appeals, Third Circuit.

Argued July 7, 1942.

Decided November 5, 1942.

John L. Pipa, Jr., and Daniel W. Kearney, both of Shamokin, Pa. (Carl Rice, of Sunbury, Pa., on the brief), for appellants.

Arthur Littleton, of Philadelphia, Pa. (Penrose Hertzler, of Pottsville, Pa., and Morgan, Lewis & Bockius and Howard W. Taylor, Jr., all of Philadelphia, Pa., on the brief), for appellee.

Before MARIS and GOODRICH, Circuit Judges, and BARD, District Judge.

MARIS, Circuit Judge.

On February 26, 1937 the District Court for the Eastern District of Pennsylvania approved the petition of the Philadelphia and Reading Coal and Iron Company for reorganization under Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, and continued the debtor in possession of all its real and personal property. On December 20, 1938, with the consent of the court, the debtor conveyed title to 123,000 acres of land to third persons. Portions of these lands were assessed for taxation as unseated land. Taxes aggregating $174,330.58 accrued on these lands for the years 1937 and 1938, during all but the last twelve days of which period the debtor held title. In May, 1939, the district court authorized the debtor to pay all taxes then due. Because the court refused to go further and expressly direct the debtor to pay the taxes the County of Northumberland, as well as certain boroughs, townships, school districts and poor districts within the county and in which the land lay, petitioned for a rule to show cause why the debtor should not be directed to pay all taxes. The court referred the petitions to a special master, who recommended that the claims for taxes upon the unseated lands which had been conveyed away by the debtor on December 20, 1938 be denied. In the meantime the debtor paid the taxes upon its seated lands and upon those unseated lands which it had retained. The district court dismissed the exceptions to the master's report and dismissed the petitions. The present appeal followed.

The petitioners contend that the taxes assessed were chargeable to the debtor as administrative expenses. It may not be doubted that taxes upon land, just as wages and rent, may become an obligation of a receiver, trustee in bankruptcy or a debtor in possession as a proper charge in the administration of the estate. This is so when the receiver, trustee or debtor actually utilizes in the operation of the business the land upon which the taxes are assessed. Taxes then become an administrative expense and as such are payable without respect to whether the land has been described by the assessors as seated or unseated. Hennepin County, Minn. v. M. W. Savage Factories, 8 Cir., 1936, 83 F.2d 453, cert. den. 299 U.S. 555, 57 S.Ct. 16, 81 L.Ed. 408. If, therefore, the debtor here used the land during the two years when it held title the taxes thereon would be payable by the debtor as an administrative expense. The record before us contains no evidence that such was the case. The petitioners argue that the dearth of evidence on this issue was due to no fault of theirs, that they offered evidence at the special master's hearings that the land was in fact used by the debtor, but that this evidence was excluded by the special master upon objection by the debtor. These rulings of the special master are assigned as error and form the subject matter of several exceptions to the special master's report. They need not be considered further by us, however, since the cause must go back for further hearing for reasons about to be stated. Upon that hearing the petitioners will have the opportunity to offer any evidence which is relevant to the question whether the debtor utilized the land in the conduct of its business during the period of reorganization and while the land was owned by it.

The debtor contended in the district court that it had no personal liability for taxes assessed against unseated lands. In answer to this contention the petitioners urged that though the lands were placed upon the unseated list they were in fact seated. They offered evidence to prove this to be so but the special master sustained the debtor's objections to the admission of this evidence. The district court dismissed the exceptions based upon these rulings. The petitioners argue that this was error. We are thus confronted with the question whether there is personal liability on the part of the owner for taxes assessed upon Pennsylvania land which has been assessed as unseated but which was at the time of assessment in fact seated. As a preliminary to the consideration of this question it will be useful to examine briefly the early statutes dealing with the taxation of lands in Pennsylvania in order to ascertain just when and how the distinction for tax purposes between seated and unseated lands arose.

The earliest act of the provincial legislature which dealt with the raising of county rates provided for the assessment of taxes upon lands but contained no provision for a classification of lands as seated or unseated. Collection was by distraint upon the goods of the owner.¹ In 1717 the county taxing officials were directed in assessing lands for taxes to take note of how much of the land was sowed with corn and also to account for all lands surveyed or taken up belonging to non-residents. Collection was by distraint upon the goods of the owner and by imprisonment of the owner.² In 1724 the taxing officials were directed to note "what tracts and parcels of land and tenements they i. e. residents respectively hold in such township; and how many and what parts of those tracts are settled, improved or cultivated, and how much of the same land is sowed with corn." The assessors were directed to exempt "out of such assessments all unsettled tracts or parcels of land: (This is to say) such tracts of land as at the time of the said assessment making are unseated, although the same were formerly accustomed to be rated in assessments." Enforced collection continued to be by distraint upon the goods and by imprisonment of the owner.³ This act contains the earliest statutory reference to unseated lands.

In 1755 in an act levying provincial taxes to procure funds for the King's use the legislature expressly provided that the exemption of unimproved lands from assessment which had been granted by the Act of 1724-25 for raising county rates was inapplicable, and the act provided for the assessment and taxation of such lands. By that act, for the first time, the unimproved lands themselves were authorized to be sold for unpaid taxes.⁴ Many successive acts reiterated the intention of the legislature to reach unimproved or unseated lands upon assessments for provincial⁵ and later state taxation.⁶ It was not until 1785, however, that the sixty years old and apparently well-rooted exemption of unseated lands from county taxation was removed. By an act passed in that year the county commissioners were empowered "to assess and levy a proportionate part of county tax on all unseated tracts of land." By this act the collection of unpaid taxes thereon was to be made in the same manner as was already provided for in the case of state taxes.⁷ Thereafter many acts were passed which were intended to provide safeguards to protect the owners of unseated lands from an unfair or improvident sale of their lands.⁸ In 1815 it was again provided by an act, the provisions of which are still in force, that taxes on unseated lands were collectible by the sale of the lands.⁹

Our résumé of the statutes demonstrates that in early colonial times taxes on land were collectible from the owner by distraint upon his goods and chattels or by imprisonment of his person. This was undoubtedly true as to both seated and unseated lands prior to 1724. Between 1724 and 1755 unseated lands were wholly exempt from taxation. Commencing with the Act of 1755 the legislature in dealing with the methods for collecting the taxes which it had again imposed (for provincial purposes) on unseated lands concerned itself solely with provisions for the sale of the lands and did not at any time refer to the collection of such taxes from the owner or to his personal liability therefor. On the other hand there were during this period many legislative references to the personal liability of owners of seated lands for taxes. In fact it was not until 1844 that statutory provision was made for the sale of seated lands for taxes and then only if it appeared that personal property could not be found thereon sufficient to meet them and that the owner after demand had neglected or refused to pay them for the space of two years.¹⁰

The difference in the legislative treatment of the problems of delinquent tax collection involved in the two types of land is quite understandable. In the case of seated lands the owners mostly resided on the lands and they or their tenants nearly always had goods or chattels thereon. Under these circumstances collection from the owner was indicated and it was the method adopted. In the case of unseated lands, however, there were never on the lands goods or chattels subject to distraint. The owners were very frequently nonresidents of the county and often land speculators¹¹ residing in other states. The land was thus the only reasonably certain and tangible security for the tax and its sale was the logical method of collection. Although the Pennsylvania legislature never at any time relieved the owners of unseated lands of personal liability for taxes the greater convenience of enforcing collection by sale of the lands doubtless resulted in practice in the exemption of the owner from personal liability. When the Supreme Court of Pennsylvania in Stokely v. Boner, Pa.1823, 10 Serg. & R. 254, followed the dictum of Judge Gibson in Burd v. Ramsay, Pa.1822, 9 Serg. & R. 109, 114, that "taxes on unseated lands, have...