People's Outfitting Co. v. United States

• Decision Date: 02 May 1932
• Docket Number: No. K-78.,K-78.
• Citation: 58 F.2d 847,74 Ct. Cl. 419
• Parties: PEOPLE'S OUTFITTING CO. v. UNITED STATES.
• Court: U.S. Claims Court

74 Ct. Cl. 419, 58 F.2d 847 (1932)

PEOPLE'S OUTFITTING CO. v. UNITED STATES.

No. K-78.

Court of Claims.

May 2, 1932.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Lucien H. Mercier, of Washington, D. C. (Frank F. Nesbit, of Washington, D. C., on the brief), for plaintiff.

Bradley B. Gilman, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen. (James A. Cosgrove, of Washington, D. C., on the brief), for defendant.

Before BOOTH, Chief Justice, and GREEN, LITTLETON, and WILLIAMS, Judges.

GREEN, Judge.

Plaintiff seeks to recover $2,468.27 excise taxes paid under the provisions of section 604 of the Revenue Act of 1924 (26 USCA § 886 note) which imposed an excise tax of 5 per cent. on sales of jewelry, real or imitation, precious and imitation stones, clocks, watches, etc. Section 604 was repealed by section 1200 of the Revenue Act of 1926. Of the amount for which suit is brought, $2,129.15 represents taxes paid on credit sales, the final installment of which was neither due nor paid prior to February 26, 1926. The remaining sum of $339.12 represents taxes paid on credit sales, the final installment of which had not been paid but was due prior to February 26, 1926. The theory of plaintiff's action is that the transactions in question were conditional sales, and that, as the final payment for the articles sold had not been made when the tax was repealed, no sales had been consummated at that time. This theory is in accord with the regulations of the department, if the transactions are found to be conditional sales. The defendant contends that the contract between the parties made the transaction a lease and not a sale, and that, under the provisions of the statute imposing a tax on the lease of articles, the fact that the final payment was not made is immaterial. The defendant also called attention to a regulation providing that in the case of lease, which includes a so-called conditional sale agreement purporting to be a lease, the tax attaches, notwithstanding full payment has not been made.

The defendant on its part presents a counterclaim for taxes alleged to have been due under the same provision, but of which plaintiff made no report, amounting to $223.35. Both plaintiff and defendant ask for interest on the sums respectively claimed to be due from the other party.

The evidence shows that the plaintiff was, at the time involved in the case, engaged in selling at retail on credit articles described in the section of the law referred to above. When the goods were transferred by the plaintiff to the other party (whom for convenience we shall call the vendee, although the term may not be strictly accurate), a contract was entered into between the parties evidencing the transaction. This contract is set forth in the findings and was entitled "lease." It recited, in substance, that the vendee leased certain goods which were described, the terms of the rental, and contained a further provision that if these covenants were fulfilled the plaintiff would convey title to the described property. The instrument does not specify to whom the property was to be conveyed, but presumably it was to the vendee.

The case turns upon the question of whether the contract executed between the parties is to be considered a lease, or whether it was in fact, when considered in the light of the intention of the parties and the construction that both placed upon it, a conditional sale. If the former, the transaction was taxable regardless of whether the payments provided by the contract had been completed; if the latter, then as we construe the law, if the payments had not been completed at the time the act which imposed the tax was repealed, no tax was due thereon.

We think it is not necessary to enter into any extended discussion as to the nature of the contract. It was a Michigan contract, made in that state and to be performed therein. It was therefore subject to the laws of that state, and it is well settled that the federal courts will follow the rules laid down by the state Supreme Court in construing the statutes of the state for which it acts. Having so construed the contract, it becomes clear that the federal revenue act applies to the transaction.

It was very early held by the Supreme Court in Bank of United States v. Donnally, 8 Pet. 361, 8 L. Ed. 974, that the nature, validity, and interpretation of contracts are to be governed by the law of the country where the contracts are made or are to be performed,...