Rothensies v. Edwin J. Schoettle Co.

• Citation: 46 F. Supp. 348
• Decision Date: 05 April 1940
• Docket Number: No. 18986.,18986.
• Parties: ROTHENSIES, Collector of Internal Revenue, to Use of UNITED STATES, v. EDWIN J. SCHOETTLE CO. et al.
• Court: U.S. District Court — Western District of Pennsylvania

46 F. Supp. 348

ROTHENSIES, Collector of Internal Revenue, to Use of UNITED STATES, v. EDWIN J. SCHOETTLE CO. et al.

No. 18986.

District Court, E. D. Pennsylvania.

August 29, 1939.

On Motions for New Trial April 5, 1940.

J. Cullen Ganey, U. S. Atty., of Philadelphia, Pa., and James W. Morris, Asst. Atty. Gen., Andrew D. Sharpe, Courtnay C. Hamilton, Leon F. Cooper, and Michael Gould, Sp. Assts. to the Atty. Gen., all of Washington, D. C., for plaintiff.

Schnader & Lewis, of Philadelphia, Pa. (Gilbert W. Oswald, of Philadelphia, Pa., of counsel), for defendants.

KALODNER, District Judge.

This is an action at law. Jury trial was waived and the case was heard before the Court on pleadings, stipulation of facts and proofs.

The plaintiff is Walter J. Rothensies, Collector of Internal Revenue for the First Collection District of Pennsylvania, to the use of the United States of America.

The defendants are Edwin J. Schoettle Company, a Pennsylvania corporation, and the Secretary of Banking of the Commonwealth of Pennsylvania, receiver of the now closed Central Trust and Savings Company.

The suit is on an abatement bond given by the defendant Schoettle as principal, and the Central Trust and Savings Company as surety, on May 4, 1923, to Blakely D. McCaughn, (then) Collector of Internal Revenue for the First Collection District of Pennsylvania. The abatement bond was given to satisfy the collection of an assessment by the Commissioner of Internal Revenue of $33,786.67 additional income and excess profit taxes for the year 1917 against the defendant Schoettle. The additional assessment was made in March, 1923. Following the assessment demand was made for payment by the then Collector of Internal Revenue McCaughn. To avoid distraint proceedings for the collection of the tax, the defendant Schoettle, after filing a claim for abatement, entered its bond with the then Collector, conditioned for the payment of the tax after consideration of the claim for abatement. The Central Trust and Savings Company, now in possession of the Secretary of Banking of the Commonwealth of Pennsylvania, signed the bond as surety.

After consideration of the claim for abatement, the Commissioner of Internal Revenue abated a portion of the tax and reduced the assessment from $33,786.97 to $19,991.60. As against this action of the Commissioner, the defendant Schoettle filed a protest claiming that no tax was due. After consideration of the protest, the Commissioner denied it. Thereafter, upon creation of the U. S. Board of Tax Appeals, an appeal was filed to the said Board. The Board of Tax Appeals in its decision reported in Edwin J. Schoettle Co. v. Com'r, 13 B.T.A. 950, considered only the question of the Statute of Limitations with respect to the collection of the tax, and after limiting its opinion to that one point (based upon stipulation of counsel), found that judgment should be entered in the proceedings before it for the defendant. The Board did not pass upon the merits of the tax claim.

Subsequently, this action was brought by Rothensies, the incumbent Collector of Internal Revenue, to the use of the United States, upon the bond given at the time the claim for abatement was filed, on the theory that the bond constituted a separate cause of action and that the defendant was liable thereon, irrespective of the fact that the Statute of Limitations then barred any action directly for the collection of the tax claim.

Several defenses are raised by the defendants with respect to this action. The defenses may be summarized as follows:

(1) That the legal plaintiff, Rothensies, the present Collector, is not the proper party plaintiff, and that the action should have been brought in the name of the former Collector of Internal Revenue, namely, McCaughn, who was named as the obligee in the bond;

(2) That the bond was executed under a mutual mistake of law;

(3) That the bond was given under duress;

(4) That the condition of the bond has been satisfied by the application of a partial credit by the Collector, on account of taxes for a subsequent year.

Separate additional defenses on behalf of the surety will be referred to later.

After consideration of the various defenses raised, and a study of the record, I am convinced that judgment must be entered for the plaintiff against both defendants, and that the defendant Schoettle's motion for summary judgment must be and is hereby denied.

As to the first mentioned of the defenses that Rothensies is not the proper plaintiff:

The bond, which is the basis for this action, names as obligee "Blakely D. McCaughn, Collector, First District, Pennsylvania." The bond recites the fact that there has been an assessment of income tax and excess profits tax for the year 1917 by "the Collector of Internal Revenue for the 1st Dist. of Penna." The condition of the bond is that "if the principal shall on notice and demand by the Collector duly pay any part of such tax found by the Commissioner to be due * * * then this obligation is to be void * * *."

McCaughn ceased to be Collector for the First District of Pennsylvania on December 31, 1927. At the time this action was commenced (December, 1935) there had already been several successors to the office of Collector for the First District of Pennsylvania, and the incumbent in office was Rothensies.

The defendant Schoettle contends that since this action is brought upon an instrument under seal that the strict common law rule applies that only one who is a party to a contract under seal may sue thereon and that consequently only McCaughn, the obligee, could bring this suit.

Counsel for defendants refers to the case of Greene County for use of, v. Southern Surety Company, 292 Pa. 304, 141 A. 27. See, however, later cases of the Pennsylvania Supreme and Superior Courts, such as Concrete Products Company v. United States Fidelity and Guaranty Company, 310 Pa. 158, 165 A. 492; Commonwealth v. Great American Indemnity Company, 312 Pa. 183, 192, 167 A. 793; and Philipsborn v. 17th and Chestnut Holding Corporation, 111 Pa.Super. 9, 169 A. 473.

If this were a question of first impression in this District, I might discuss the question at greater length, but the precise point has already been ruled upon by this Court in the case of McCaughn, Former Collector of Internal Revenue, v. Union Paving Company et al., D.C., 60 F.2d 657, 658. In the latter case Judge Dickinson ruled that where a suit is brought upon a bond for the payment of taxes, suit should be brought in the name of the incumbent Collector at the time litigation is commenced, rather than in the name of the Collector named as obligee in the bond. In that case the Court granted leave to amend so that the incumbent Collector would be named as legal plaintiff in substitution for the former Collector. Said Judge Dickinson:

"Although, as we have held, the suit is brought in conformity with the Pennsylvania practice, it does not follow that it has been properly brought. The bond in suit is one called for by the laws of the United States. Suits thereon may in consequence be regulated by the same law. This court has recently held in the case of MacLaughlin v. Philadelphia Barge Company, D.C., 60 F.2d 333 (opinion by Kirkpatrick, J.), that in suits on bonds given to an official for the benefit of the United States the official character of the bond must be preserved by any action thereon being brought by the official in office when the suit is brought, who is the successor in office of the official to whom the bond was originally given, and the act of 1899 amended by the cited act of February 13, 1925 (28 U.S.C.A. § 780), further requires that the official in office must be kept of record in all suits brought by being, within a prescribed time, substituted for the former party when he goes out of office, or otherwise the action shall abate. This latter act does not in terms apply in its abatement features to the pending action, because here McCaughn went out of office before suit brought. The general subject of the act is the `survival of Actions,' and the substitution is called for only `where during the pendency of an action' the officer who is a party to it goes out of office. The act is none the less evidence of the policy of the law of the United States to require that all actions by, as well as against, `Officers' of the United States, be brought and thereafter kept in the name of those who are in office. As we have said, it is a matter of purely procedural law and of little, if any, practical importance whether the instant action be brought in the name of the official to whom the bond was given or in the name of the one in office when the suit was brought. It is of importance, however, that the practice be settled one way or the other, and the cited case settles it for us. * * *

"This action then under our practice should have been brought in the name of the collector in office when brought."

In the opinion of Judge Kirkpatrick in the MacLaughlin v. Philadelphia Barge Company case, supra, this Court said:

"McCaughn was the proper plaintiff in the former suit, and, if that suit had not been brought, it may be assumed that MacLaughlin, the present collector, would be the proper party to sue, in spite of the fact that he is not the obligee in the bond. Judge Hand in Bowers v. American Surety Company 2 Cir., 30 F.2d 244, 246, and following Tyler v. Hand, 7 How. 573, 12 L.Ed. 824, accepts the theory of fictional personality which recognizes the office as a legal person, and, upon grounds of policy and convenience I think his view should be followed. He says: `Of the convenience of recognizing an office as a legal person in cases like that at bar there can be no question; the purpose of such bonds is to create an obligation in favor of the incumbents as they succeed each other'".

In accord with these decisions are Hilton Lumber Company v. Grissom, 4 Cir., 70 F.2d 892; Bryant-Link Company v. Hopkins, ...