Security-First Nat. Bank v. United States

• Citation: 153 F.2d 563
• Decision Date: 13 February 1946
• Docket Number: No. 11051.,11051.
• Parties: SECURITY-FIRST NAT. BANK OF LOS ANGELES v. UNITED STATES et al. In re F. P. NEWPORT CORPORATION, LIMITED.
• Court: U.S. Court of Appeals — Ninth Circuit

153 F.2d 563 (1946)

SECURITY-FIRST NAT. BANK OF LOS ANGELES v. UNITED STATES et al. In re F. P. NEWPORT CORPORATION, LIMITED.¹

No. 11051.

Circuit Court of Appeals, Ninth Circuit.

February 13, 1946.

W. C. Shelton and George W. Burch, Jr., both of Los Angeles, Cal., for appellant.

Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, A. F. Prescott, Louise Foster, and Harold C. Wilkenfeld, Sp. Assts. to Atty. Gen., and Charles H. Carr, U. S. Atty., E. H. Mitchell, Asst. U. S. Atty., and Eugene Harpole, Sp. Atty. B. I. R., all of Los Angeles, Cal., for appellee United States.

Bailie, Turner & Lake, of Los Angeles, Cal., for appellee Metcalf.

Before GARRECHT, MATHEWS and HEALY, Circuit Judges.

MATHEWS, Circuit Judge.

This appeal is from an order affirming an order of a referee in bankruptcy directing a trustee in bankruptcy to pay a claim of the United States for income taxes assessed against the trustee for the calendar years 1938 and 1939. The facts are as follows:

Under date of March 1, 1930, F. P. Newport Corporation, Limited, executed and delivered to appellant, Security-First National Bank of Los Angeles, its promissory note for $760,000, payable on March 1, 1932, with 7% interest, and, as security therefor, executed and delivered to appellant conveyances of real property, hereafter called the trust property, in Los Angeles County, California. Concurrently therewith and as part of the same transaction, appellant and the corporation executed a declaration of trust (No. SS-70401, subsequently designated No. D7224) which declared that the conveyances, though in terms absolute, were intended to be, and were, made to and received by appellant in trust, with power of sale, as security for the payment of the note and for the payment of any additional sums which might thereafter be borrowed from appellant by the corporation. The corporation did, in 1932, 1933 and 1934, borrow additional sums from appellant. The total amount of its debt to appellant exceeded $1,250,000.

On March 19, 1935, an involuntary petition in bankruptcy was filed against the corporation. On March 25, 1935, H. F. Metcalf was appointed receiver and, as such, took charge of the corporation's property, including the trust property. On January 12, 1937, the receiver, appellant and the corporation made an agreement whereby appellant consented to a reduction in amount and to an extension of time for payment of the corporation's debt to appellant. Thereafter, on January 12, 1937, the corporation was adjudged a bankrupt. On March 18, 1937, Metcalf was appointed trustee² and, as such, took possession of the bankrupt's property, including the trust property.

On March 19, 1937, the trustee petitioned for an order approving the agreement of January 12, 1937, and authorizing and directing him to be bound thereby. The referee, by an order entered on August 13, 1937, required the agreement of January 12, 1937, to be modified by the execution of a supplemental agreement. On August 31, 1937, the trustee, appellant and the bankrupt executed a supplemental agreement modifying the agreement of January 12, 1937, as required by the order of August 13, 1937. The agreement of January 12, 1937, was further modified by stipulations executed by the trustee, appellant and the bankrupt on October 14, 1937, and October 29, 1937. The court, by orders entered on October 29, 1937, and November 5, 1937,³ modified the order of August 13, 1937, and affirmed it as modified. Thereby the court approved the agreement of January 12, 1937, as modified by the supplemental agreement of August 31, 1937, and the stipulations of October 14, 1937, and October 29, 1937, and directed the trustee to be bound thereby.

The agreement of January 12, 1937, as modified by the supplemental agreement of August 31, 1937, and the stipulations of October 14, 1937, and October 29, 1937, provided that, with specified exceptions, the trust property should be leased or sold on terms and conditions approved by the court, and that all "moneys" from such leases and sales should be paid to the trustee and by him paid over to appellant.⁴ Pursuant thereto, part of the trustee property was leased on terms and conditions approved by the court. From such leased property the trustee received, in 1938 and 1939, rents and royalties aggregating more than $451,000. The rents and royalties so received constituted income taxable to the trustee.⁵ On that income the Commissioner of Internal Revenue assessed the taxes here involved.

For these taxes — aggregating $19,363.65, plus interest — the United States filed a claim against the trustee on July 22, 1940. The trustee filed objections to the claim. The referee sustained the objections and disallowed the claim by an order entered on November 12, 1941. The court affirmed the order of November 12, 1941, by an order entered on December 17, 1941. We reversed the order of December 17, 1941, on November 23, 1942.⁶ Certiorari to review our decision was denied on March 1, 1943.⁷ Our mandate was issued on March 8, 1943. Pursuant thereto, the court below, on April 8, 1943, entered an order reversing the order of November 12, 1941, and allowing the claim.

On September 24, 1943, the United States filed a petition for an order requiring the trustee and appellant to show cause why the claim should not be paid. The trustee and appellant answered the petition, a hearing was had, and the referee, on June 6, 1944, entered an order directing the trustee to pay the claim out of rents and royalties received or to be received by him from the trust property. The court affirmed the order of June 6, 1944, by an order entered on February 6, 1945. From the order of February 6, 1945, appellant has appealed.

Appellant contends that, by the agreement of January 12, 1937, as modified by the supplemental agreement of August 31, 1937, and the stipulations of October 14, 1937, and October 29, 1937, the trustee was precluded from paying, out of income (rents and royalties) received...