Schwarz v. United States

• Decision Date: 10 September 1951
• Docket Number: No. 6254.,6254.
• Citation: 191 F.2d 618
• Parties: SCHWARZ et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — Fourth Circuit

191 F.2d 618 (1951)

SCHWARZ et al. v. UNITED STATES.

No. 6254.

United States Court of Appeals Fourth Circuit.

Argued June 19, 1951.

Decided September 10, 1951.

Samuel Bogorad, Washington, D. C. (Wilson R. Toula, Baltimore, Md., on the brief), for appellants.

Virginia H. Adams, Sp. Asst. to Atty. Gen. (Theron Lamar Caudle, Asst. Atty. Gen., Ellis N. Slack and Lee A. Jackson, Sp. Asst. to Atty. Gen., Bernard J. Flynn, U. S. Atty. and Frederick J. Green Jr., Asst. U. S. Atty., Baltimore, Md., on the brief), for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

PARKER, Chief Judge.

This is an appeal in an action to obtain a judgment for a deficiency in income taxes, with penalties and interest, and to subject to the payment thereof two annuity contracts of the taxpayer and a half interest in a tract of land which had been deeded to him and his wife as tenants by the entireties. There was judgment in favor of the United States for $96,766.55, the amount of the taxes with penalties and interest; and the annuity contracts and the half interest in the tract of land were subjected to the payment of the judgment. In the case of the annuity contracts, the insurance company which had issued them was directed to pay into court to be applied on the judgment all amounts to which the taxpayer might be entitled as they should become due, with provision for a lump sum payment in discharge of the obligations thereunder if the insurance company and the government could reach an agreement with regard thereto. In the case of the half interest in the tract of land, the court held that this was subject to sale on the ground that the conveyance to the taxpayer and his wife did not create an estate by entireties because they were not validly married at the time of the conveyance. Taxpayer and his wife have appealed from the judgment, contending: (1) that the court was without jurisdiction; (2) that the portion of the order dealing with the annuity contracts is void because not providing for their sale at public auction; and (3) that the court erred in holding the half interest in the tract of land subject to the tax lien, since the land was purchased with the wife's money and was conveyed to her and her husband with intent that a tenancy by entireties be created and without reason on her part to think that she was not validly married to her husband at the time of the conveyance.

There is no merit whatever in the jurisdictional point. 26 U.S.C. § 3744¹ expressly provides for bringing suit for recovery of the tax in the District Court of the District in which liability for the tax is incurred or where the taxpayer resides at the time of the commencement of the action. The facts giving the court jurisdiction were set forth in the complaint and established on the trial; and it was, of course, not necessary that the statute be pleaded.

The order directing that payments under the annuity contracts be made to the "Department of the Treasury" to be applied on the judgment was entirely proper, as this was, in effect, providing a receivership for the enforcement of the tax lien in accordance with 26 U.S.C. § 3678. We think however, that the provision for a lump sum payment in case the government and the insurance company agree on it should be modified to provide for agreement by the taxpayer also, with provision that, if he does not agree to the lump sum agreed upon by the government and the insurance company, the contracts shall be sold at public auction and the proceeds applied on the judgment. This will adequately protect the rights of the taxpayer without sacrificing any rights of the government.

With respect to the interest in land, the facts are that the tract was conveyed to taxpayer and his present wife in the year 1936 by a deed which was intended to convey to them an estate therein by the entireties and which was in all respects sufficient in form to vest such an estate in them. According to the uncontradicted evidence, the land was paid for with the wife's money and was conveyed to her and the taxpayer for the purpose of vesting in them an estate by the entireties at the suggestion of the real estate agent making the sale, who explained to them the advantages of such an estate. At that time, they were living together as husband and wife, having obtained a license to marry followed by a common law marriage in 1933 and having gone through a religious marriage ceremony in 1935, when they were visiting the old home of the wife in Austria. Neither marriage was valid, however, for the reason that, unknown to the wife, taxpayer had at the time another living wife from whom he had not been divorced. The judge below has found that taxpayer practiced a deception upon the wife who is now before us with respect to his marital status; and the uncontradicted evidence is that she did not learn of his former marriage until the pleadings were filed in this case. The former wife died in 1939 and the tax lien was not filed until the following year. Another marriage ceremony was performed in 1941, the reason for which, as given by the wife, was that she desired a record of her marriage and it was impossible to obtain a record of the marriage in Austria because of the state of war then existing.

It is settled in Maryland that a debtor's interest in an estate by entireties is not subject to sale under execution in satisfaction of his debts. Jordan v. Reynolds, 105 Md. 288, 66 A. 37, 9 L.R.A.,N.S., 1026, 121 Am.St.Rep. 578, 12 Ann.Cas. 51; Masterman v. Masterman, 129 Md. 167, 98 A. 537; Annapolis Banking & Trust Co. v. Smith, 164 Md. 8, 164 A. 157; McCubbin v. Stanford, 85 Md. 378, 37 A. 214, 60 Am. St.Rep. 329. The learned judge below was of opinion, however, that because the parties were not lawfully married at the time of the conveyance to them, an estate by the entireties was not created and that the effect of the conveyance was to vest in them an estate in joint tenancy or a tenancy in common, which was not converted by the subsequent valid marriage into an estate by the entireties. It is well settled, of course, that the marriage of persons holding an estate as joint tenants or tenants in common does not convert such an estate into one by the entireties. 1 Tiffany Real Property 2d ed. 646; 2 Coke on Littleton sec. 187(b); Fulper v. Fulper, 54 N.J. Eq. 431, 433, 34 A. 1063, 32 L.R.A. 701. We do not think, however, that the case before us can be disposed of by looking merely to the fact that the parties were not validly married at the time of the conveyance. We have the additional facts, which cannot be ignored, that the wife's money paid for the property, that she directed that it be conveyed to her and the man whom she had fraudulently been led to believe was her husband and that it be conveyed in such way as to vest in them an estate by the entireties. Under such circumstances we think that taxpayer and those claiming under him are estopped to claim any interest in the land beyond the estate by entireties which it was the intention of the parties to create. See Jacobs v. Miller, 50 Mich. 119, 15 N.W. 42; Stone v. Culver, 286 Mich. 263, 282 N.W. 142, 119 A.L.R. 512 and note; McCollum v. Price, 213 Ark. 609, 211 S.W.2d 895; 26 Am.Jur. p. 701.

Any interest vested in the taxpayer by the conveyance was impressed with a trust in favor of the woman whom he had deceived with respect to his marital status and who put up the money to purchase the land with the purpose that the marital estate of tenancy by the entireties be created by the conveyance. When the purpose of the conveyance failed because there was no valid marital status to which it could attach, there can be no question but that equity would impress the property with a resulting trust in favor of the woman who put up the purchase money. See Rosenthal v. Miller, 148 Md. 226, 129 A. 28; Latrobe v. American Colonization Society, 134 Md. 406, 106 A. 858; King v. Mitchell, 8 Pet. 326, 349, 8 L.Ed. 962; Oakhurst Land Co. v. Newell, 185 N.C. 410, 117 S. E. 341; 54 Am.Jur. p. 154 sec. 197; Pomeroy Equity Jurisprudence 4th ed. sec. 1032 et seq.; Bogart on Trusts vol. 2 sec. 468 pp. 1442-1443.² The ordinary rule is that, where the wife pays for land and the title is made to her and husband, there is a resulting trust in her favor for the entire property in the absence of clear evidence that the husband was to have a beneficial interest. See Kelly Springfield Tire Co. v. Lester, 190 N.C. 411, 130 S.E. 45; Dixon...