Summer v. Allison
| Decision Date | 28 September 1972 |
| Docket Number | No. 47436,No. 3,47436,3 |
| Citation | 193 S.E.2d 177,127 Ga.App. 217 |
| Parties | Hugh H. SUMMER v. Jack R. ALLISON et al |
| Court | Georgia Court of Appeals |
Syllabus by the Court
1. (a) Where there has been a levy and seizure of a Federal tax lien on a note, indebtedness or other intangible, and notice of the levy is served upon the debtor, there has been effected a virtual transfer of ownership, or an assignment thereof by operation of law, to the Government of the United States.
(b) An opinion by a lay witness as to the legal effect of a levy, seizure and the giving of notice binds no one, particularly when no confidential relationship existed.
(c) A witness may, within the ambit of Code § 38-1708, express his own opinion, but under no circumstances (except as stated in Overnite Transportation Co. v. Hart, 126 Ga.App. 566(1), 191 S.E.2d 308) may he testify as to what the intent, purpose or contemplation of another may have been in a given situation. If his own opinion, intent or purpose appears to have been contrary to the plain terms of a statute, or the construction thereof by appellate courts, it is not admissible, for all parties are bound by the statute, as thus construed.
2. A garnishment proceeding instituted in a common law court of the State after the levy, seizure and service of notice cannot change the status of the indebtedness and does not afford to the garnishing creditor any lien or rights against it.
3. After levy, seizure and service of notice on the debtor the holder of the note or indebtedness could not maintain an action thereon against the debtor, and the rights of a garnishing creditor can rise no higher than those of the holder of the note or indebtedness. If the holder of the note could not sue and recover thereon, a garnishing creditor cannot reach it.
4. The issue formed on a traverse to a garnishee's answer to the summons is whether he was, at the time of the service of the summons or between that time and the making of answer, indebted to the defendant. Where, before service of the summons, a levy, seizure and service of notice upon the debtor-garnishee was effected under a Federal tax lien, there had been such a transfer of ownership of the note and indebtedness levied upon as to authorize the debtor or maker to answer not indebted in making answer to the summons of garnishment.
5. Garnishment is a proceeding at law; it is not an equitable proceeding, and it is controlled by the strict terms of the statute, particularly when it is pending in a common law court where affirmative equitable relief is not available.
6. Where there has been a levy and seizure of a note and the indebtedness represented thereby, a subsequent sale thereof divests all right, title and interest therein which had been held by the delinquent taxpayer and it passes to the purchaser at the sale.
7. Where garnishing creditors, or their representative, attend a public sale of property on which a federal tax lien has been levied, fail to submit any bid thereon, and no equitable proceedings have been interposed, they are in no position to complain that they may have lost an opportunity to satisfy their claims out of the indebtedness which may have exceeded in amount the tax claims levied.
8. The price received upon a public sale, openly and fairly held and after lawful advertisement and notice, is prima facie the fair market value of the property sold. Inadequacy in price does not, alone, afford a basis for attacking the sale; it must have been coupled with fraud, collusion, mistake, or the like, and the attack could be made only in equity.
Hugh H. Summer sold a lot to KBM Data Systems, and a part of the consideration for his doing so was that he would receive 50,000 shares of its stock and that KBM would obtain a loan for him from EAP Finance, Inc., in the sum of $150,000, bearing interest at 8 per cent, payable annually, with the principal due three years from the date thereof and to be secured by the shares of KBM stock. The loan was obtained, and on March 28, 1969 Summer executed his note to EAP Finance for $150,000, receiving the full amount in cash. The 50,000 shares of KBM stock were attached as collateral. The note was transferred to Trust Company of Georgia by EAP Finance, and by Trust Company of Georgia to KBM Data Systems. The first year's interest of $12,000 was paid March 27, 1970.
KBM suffered financial reverses, and appellees, some fifteen in number, secured judgments against it totaling $33,706.44. Withholding taxes from the salaries and wages of officers and employees of KBM were not remitted, and U.S. Internal Revenue agents levied upon and seized the note November 30, 1970. The note was the only asset of significant value which KBM then held.
Notice of the levy and seizure was given by Internal Revenue to Summer, the maker of the note, to KBM and Falls College and Quick-Print as KBM trade names, the holder of the note, and to EAP Finance, the payee named therein. The notice required that payments (to the extent of the tax liability) on the indebtedness thus levied on be made to Internal Revenue Service.
The second year's interest having become due March 28, 1971, and not having been paid to KBM or to Internal Revenue, KBM gave notice on June 14, 1971 to Summer of its election, under terms of the note, to accelerate the entire unpaid balance and to bind him for the payment of attorney's fees. Suit was then brought on the note against him by KBM in the State Court of DeKalb County. Summer filed a defense on the ground that since the note had been levied upon and seized by Internal Revenue, thus effecting a transfer to it, KBM had no right of action. The suit was dismissed without prejudice.
The appellees, as judgment creditors, filed garnishment proceedings in the State Court of DeKalb County and had summons served on Summer June 25, 1971, and on August 18, 1971, he answered, asserting that he was not indebted to KBM Data Systems in any amount, and had no property belonging to it. The answer was traversed, and the following facts were stipulated.
After due advertisement and notice Internal Revenue sold the note 1 at auction to the highest bidder. Attending the sale were representatives of KBM, Summer and appellees. The representative of Internal Revenue announced that the note was being sold 'as is, where is, and without recourse on the United States,' and that the minimum bid that would be accepted would be $46,515.84, which represented the principal, interest and costs on the delinquent taxes owing by KBM. An attorney for Summer entered a bid in that sum and all others present expressly declined to bid. The note was then knocked off to Charles P. Bagley as attorney for Hugh H. Summer, and a certificate of sale was executed to him as provided in 26 U.S.C. §§ 6338(a) and 6339(a)(1), (2). 2
The garnishors moved for summary judgment on the basis of the above, together with an affidavit from D. M. Fitzpatrick (the representative of Internal Revenue who had caused the levy, seizure and sale of the note to be made), that KBM had not negotiated the note to Internal Revenue by way of endorsement, but had transferred possession at the time of seizure, and that absolute ownership of the note by Internal Revenue was not contemplated to have resulted either by the taxpayer, KBM, or by Internal Revenue, and that KBM had been entitled to redeem the note by paying the amount of the tax, with interest and costs, at any time prior to the sale. The garnishee also moved for summary judgment, and after consideration of the motions, pleadings and supporting evidence the court entered a judgment sustaining the traverse of the garnishors, finding the garnishee to have been indebted to KBM for the difference in the amount he had did at the tax sale and the amount of the note. The court then entered final judgment for the garnishors in the amount of their judgments, and denied the motion of the garnishee. Garnishee, Summer, appeals and enumerates all rulings as error.
Frank Lawson, Norman H. Fudge, Stone & Stone, Noah J. Stone, Atlanta, for appellant.
Morris, Redfern & Butler, C. David Butler, Norman Estes Smith, Atlanta, for appellees.
The question raised in all enumerations of error is whether the sale of the note and its purchase by Summer, under the circumstances and facts above recited, had the effect of passing to Summer title to the whole of the indebtedness represented by the note. Collateral questions raised are whether the levy and seizure of the note amounted to a transfer of it from KBM to Internal Revenue, and hence whether the assertion in the answer of the garnishee that he was not indebted to KBM was true, and, even if not, whether the subsequent sale divested KBM of all right, title and interest in the note; whether the fortunes of the garnishing creditors followed those of their debtor, who was, at the time of levy and seizure, the holder of the note; and whether service of the summons of garnishment after levy and seizure but before the sale afforded to the garnishing creditors an enforceable lien against the note which could survive its sale.
1. (a) That the levy and seizure of the note 3 with service of notice on the debtor amounted to a 'virtual' transfer, or was tantamount to a transfer of ownership to Internal Revenue, seems to have been settled in United States v. Eiland, 4 Cir., 223 F.2d 118, where it was asserted that 'the service of such notice results in what is virtually a transfer to the government of the indebtedness, or the amount thereof necessary to pay the tax, so that payment to the government pursuant to the levy and notice is a complete defense to the debtor against any action brought against him on account of the debt.' And in United States v. Sullivan, 3 Cir., 333 F.2d 100, 116, it was held that a ...
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