United States v. Bank of Shelby
| Decision Date | 23 January 1934 |
| Docket Number | No. 6993.,6993. |
| Citation | 68 F.2d 538 |
| Parties | UNITED STATES v. BANK OF SHELBY et al. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Lester G. Fant, U. S. Atty., of Holly Springs, Miss., for the United States.
J. N. Flowers and Louis C. Hallam, both of Jackson, Miss., for appellees.
Before BRYAN, SIBLEY, and HUTCHESON, Circuit Judges.
On March 12, 1925, the United States assessed against one Toler an additional income tax of $4,356.52. It was not paid, and, on June 17th, the Deputy Collector inquiring at the Bank of Shelby was told by the cashier that $3,646.52 stood to Toler's credit there and subject to his check. The Deputy Collector notified the bank not to allow the deposit withdrawn, saying that he would have a warrant the next day to levy on it. That same day the bank wrote to the Collector that the deposit did not really belong to Toler, but to his wife, but if held to be Toler's the bank should be allowed to offset a $10,000 note which it held against him. The following day the Deputy Collector served upon Powell, the vice president of the bank, a notice of lien for the taxes and a warrant of distress, claiming thereby to have levied on the deposit. Payment of the money was thereupon demanded and refused. The demand and refusal were repeated in February and August, 1926. The United States then sued the bank and the vice president to recover of them the amount of the deposit. They pleaded the general issue and that the bank at the time of demand did not owe Toler anything because the deposit was offset by the note, Toler being insolvent. The case was tried by the court without a jury upon an agreed statement of facts, and from a judgment for the defendants this appeal was taken.
The suit is expressly based on subsections (e) and (f) of section 1114 of the Revenue Act of 1926 (26 USCA §§ 1268a, 1269), copied in the margin.1 This section is entitled Penalties, and embraces criminal punishments as well as the imposition of the civil liability on persons other than the taxpayer which is here asserted. It is contended on the one hand that as a penal statute it ought to be narrowly construed; that a bank deposit being a mere debt is not property or a right to property which is capable of possession or levy; and that no levy has in this case been made on it within the words of the statute. On the other hand it is urged that the statute is remedial, designed to afford a remedy effectually to assert the tax lien set up on property and rights to property of the taxpayer by 26 USCA § 115, and ought to be liberally construed. We put aside these contentions without deciding them because if we treat what was done by the Deputy Collector as a garnishment and a levy within the meaning of the statute, nevertheless there was at the time no property or right to property of Toler which Toler could assert and consequently nothing which the tax could take a lien on or the tax officer could rightfully demand possession of. The agreed facts are these: Just prior to the levy Toler owned a plantation encumbered far beyond its value by several mortgages to creditors other than the bank. He was arranging to settle them except the first two for $20,000 which the bank was to lend, and two notes, each for $10,000 due in November following and secured by a second mortgage, were executed by him. The settlement fell through and the notes did not become effective, but on June 8th it was agreed that one of them should be used by the bank to take up about $6,400 of past due unsecured notes which Toler owed it, and the difference of $3,646.52 was put to his credit on the books. At the time of the levy on June 18th, the plantation was under advertisement for sale under the first mortgage and was in fact sold on June 29th, so that there was no security for the $10,000 note held by the bank, and Toler was hopelessly insolvent. The refusal to surrender the money on June 18, 1925, could impose no liability on the bank or its officer under the act of 1926, because that act did not go into effect until February 26, 1926. When the demands subsequent to that date were made, the act was in effect but the note had fallen due and was unpaid. But we pass by any difference that this might make because we think that even on June 17, 1925, the bank had a clear right to make the offset and by consequence the officer had no right to demand the money. Some courts have held that on insolvency of the customer the banker's lien authorizes the application of general deposits to unmatured notes as a legal right. The general rule in...
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