Stuart v. Willis

• Decision Date: 16 January 1957
• Docket Number: No. 14960.,14960.
• Citation: 244 F.2d 925
• Parties: Wm. P. STUART, Collector of Internal Revenue for the District of Arizona, Appellant, v. J. E. WILLIS and King-Hoover Construction Co., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

244 F.2d 925 (1957)

Wm. P. STUART, Collector of Internal Revenue for the District of Arizona, Appellant, v. J. E. WILLIS and King-Hoover Construction Co., Appellees.

No. 14960.

United States Court of Appeals Ninth Circuit.

January 16, 1957.

Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson, A. F. Prescott, Fred E. Youngman and Davis W. Morton, Attys., Dept. of Justice, Washington, D. C., Jack D. H. Hays, U. S. Atty., Robert S. Murlless, Asst. U. S. Atty., Phoenix, Ariz., for appellant.

Andersen & Ray, H. Verlan Andersen and Kenneth C. Chatwin, Phoenix, Ariz., for appellees.

Before STEPHENS, FEE and BARNES, Circuit Judges.

JAMES ALGER FEE, Circuit Judge.

This is an appeal from the judgment of the District Court permitting recovery by appellees against the Collector of Internal Revenue for taxes found by the trial court to be improperly collected.

John E. and Edith P. Willis¹ and the King-Hoover Construction Company, Harry C. King and Claude E. Hoover entered into a contract on November 16, 1950, which recited that the parties became joint venturers. King-Hoover, a corporation, was in a preferred position to obtain a construction contract with the government. However, sufficient funds to finance the venture were lacking. By the contract above mentioned, Willis was to provide $50,000 additional financing for the construction project. As consideration, the corporation and King and Hoover guaranteed the return of this amount of capital, together with a profit, from funds held back by the government. This profit was to be interest at eight per cent per annum for the time the money was in use or twenty-five per cent of the net profits of the venture if that sum exceeded the agreed interest. Further, Lowell Monsees was by the contract appointed agent of Willis, to have joint control of all funds going into the project and to countersign all checks. King-Hoover bid on and obtained the contract from the Navajo Ordnance Depot for Railroad Rehabilitation. Willis advanced $57,800 to keep the job going.

On June 16, 1951, the Willises,² in order further to insure themselves against loss of their investment, obtained from King-Hoover a formal assignment of all sums due or to become due under this contract. There was not at any time due to the government payroll taxes exceeding $3,610.95 during the course of this contract.

On or about November 6, 1951, the contract for the railroad rehabilitation job was successfully completed, and there was due and owing from the federal government thereon $12,278.18.

However, King-Hoover Construction Company had become indebted to the Collector for payroll taxes on other jobs which it was doing and which were not in any way connected with the job which was financed and performed by the joint venturers. The Collector filed liens upon the railroad rehabilitation job on July 13, August 28, October 5 and 19, 1951, totaling $12,278.18.³ Of this sum, $3610.95 only was due on the railroad rehabilitation project. Of the total sum levied, $8,667.23 consisted of taxes not due from the railroad rehabilitation project. Specifically, $5,489.49 of this sum was for Federal Unemployment taxes for the year 1951 on King-Hoover Construction Company alone. Such latter item was not due on October 5, 1951, the date of the collection letter therefor, November 6, 1951, the date of payment, or from any one or at all until January, 1952.

The joint venturers filed a claim for refund of the over-taxation which the Collector had applied to payment of the separate liability of King-Hoover Construction Company. Upon denial thereof, suit was filed in the District Court by the joint venturers. The trial court heard evidence at the trial and entered findings of fact, conclusions of law and judgment for plaintiffs. From this judgment, appeal is prosecuted.

The Collector contends that the trial court was without jurisdiction because grounds of recovery upon which the action was based were not set out in the refund claim; that there was no joint venture; that the assignment was not binding on the United States; that Willis had no lien upon the proceeds of the government contract prior and superior to that of the United States. It is claimed also that the trial court erred in allowing interest on the judgment.

The contention of the government that there was no jurisdiction in the District Court seems based upon an illogical distortion. The matter was not brought to the attention of the trial court, but this Court must consider it. The contention is that Willis was not a taxpayer and therefore the complaint and the judgment were invalid because these documents varied from the claim for refund, which was based upon the premise that the two were joint venturers who had paid a tax upon the joint payroll of the railroad construction job. It was clearly shown by the schedules filed with the claim of refund that the government agents had levied upon payments due from the United States to the joint venturers for accrued and impending taxes of one of the venturers — King-Hoover. But there is no variance in the complaint. There the joint venture and the supposed illegal levy are likewise alleged. The fault, according to the brief of the Collector, is in the fact that it is also alleged that the whole sum due the joint venturers had been assigned to one of them, Willis, and that the judgment of the District Court ran in his favor alone. In this there was no inconsistency. The joint venturers still filed the action as taxpayers. The basis of the claim of the complaint and the judgment was that the Collector could not levy on payments due the joint venturers for a tax liability of one of them alone.

The chief contention of the Collector seems to be that Willis and King-Hoover were not joint venturers. This was, of course, a pure question of fact. The District Court expressly found as a fact that these parties acted in that capacity. Likewise, it drew the same legal conclusion from the written instrument signed by all these parties on November 16, 1950. By its terms and intent, this instrument expressly postulated a joint adventure of Willis and the King-Hoover corporation and King and Hoover as individuals. It was conditioned upon King-Hoover alone obtaining the railroad construction contract with the United States. But the fact that the contract, number DA-02-002-AVI-30, Navajo Ordnance Depot, Bellmont, Arizona, was entered between the United States and King-Hoover, as parties, did not affect the prior arrangement between Willis and the corporation.

There is no doubt King-Hoover used its own employees and building equipment on this job. It kept the books. Nowhere was a capital account set up for Willis. It made all payroll returns on this contract to the United States and the State of Arizona. Apparently no partnership income tax return was filed. There is no doubt that the contract between the parties described as joint venturers provided that there was to be a bond on the job. The profits, if any, were to be computed according to accepted accounting practices, and any extensions or additions to the contract were to be governed thereby. The money put up by Willis was to be used exclusively on this railroad construction project,...