United States v. Fidelity & Deposit Co. of Maryland

• Decision Date: 20 December 1935
• Docket Number: No. 7339.,7339.
• Citation: 80 F.2d 24
• Parties: UNITED STATES v. FIDELITY & DEPOSIT CO. OF MARYLAND.
• Court: U.S. Court of Appeals — Ninth Circuit

80 F.2d 24 (1935)

UNITED STATES v. FIDELITY & DEPOSIT CO. OF MARYLAND.

No. 7339.

Circuit Court of Appeals, Ninth Circuit.

October 23, 1935.

Rehearing Denied December 20, 1935.

Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, Wm. H. Boyd, and S. Dee Hanson, Sp. Assts. to Atty. Gen., for the United States.

Joe Crider, Jr., and Clarence B. Runkle, both of Los Angeles, Cal., for appellee.

Before WILBUR and GARRECHT, Circuit Judges, and NORCROSS, District Judge.

WILBUR, Circuit Judge.

This is an action by the United States on a bond given on February 24, 1931, by the Fidelity & Deposit Company of Maryland to the collector of internal revenue to secure the payment of two overdue installments of the internal revenue tax on income due from the Hellman Investment Company for the calendar year 1929; the tax not having been paid. Judgment was rendered for the defendant on demurrer, from which the government appeals.

The total tax was $235,920.30, the third installment of $58,980.07 was due September 15, 1930, and the fourth installment of the tax was due December 15, 1930. The collector was demanding payment and the taxpayer requested an extension of time to September 15, 1931. This extension was granted in consideration of the execution of the bond in question for the sum of $135,000, running to the United States as obligee, wherein it was agreed that the appellee, hereinafter called the "Surety Company," would pay the tax in the event that the Hellman Investment Company failed to do so. Having thus secured the desired extension, the taxpayer has failed to pay the tax, and the Surety Company defends upon the ground that the collector had no authority to grant the extension, and therefore that the extension was not effective, and consequently that there was no consideration for the bond although the collector in fact refrained from any attempt to enforce the tax until after September 15, 1931. The complaint herein was filed August 22, 1932.

The contention of the Surety Company, sustained by the trial court is based upon section 56 (c) of the Revenue Act of 1928, c. 852, 45 Stat. 791 (26 USCA § 56 and note), which authorizes the Commissioner of Internal Revenue to "extend the time for payment of the amount determined as the tax by the taxpayer, or any installment thereof, for a period not to exceed six months from the date prescribed for the payment * * * thereof." That this provision limits the power of the Commissioner in the granting of extensions is not questioned. The appellee contends that this limitation also applies to the collector of internal revenue who is charged with the duty of collecting the tax after the tax roll leaves the hands of the Commissioner, or, rather, its contention is that the collector has no power to extend the time for the collection of the tax because he is charged with the duty of immediate collection, citing 26 USCA §§ 2, 14, 34, 102, 103, 104, and 2056, in support of this contention. Appellee states: "The underlying fallacy in appellant's entire position as set forth in its brief * * * is that the Collector of Internal Revenue has the power in the exercise of his own discretion to grant extensions of time for the payment of income taxes for such period as he may determine."

The validity of a bond given to a collector of internal revenue to secure the payment of a tax then due in consideration of further time to pay the tax has been repeatedly sustained. In a late case by this court we sustained such a bond. Hughson v. United States (C. C. A.) 59 F.(2d) 17, citing Roberts Sash & Door Co. v. United States (Ct. Cl.) 38 F.(2d) 716, 717, affirmed 282 U. S. 812, 51 S. Ct. 185, 75 L. Ed. 727; United States v. John Barth Co., 279 U. S. 370, 49 S. Ct. 366, 73 L. Ed. 743. It is contended by the appellant and conceded by the appellee that officers of the United States may take bonds voluntarily given, and that such bonds are valid common law obligations. We quote from appellee's brief as follows: "We are entirely in accord with the first statement that the United States, or an officer thereof, may, notwithstanding the absence of statutory authority, take a bond voluntarily given, as a common law obligation," subject, it contends, to the exception that the act guaranteed must not be "contrary to law or public policy." The rule is, of course, subject to this limitation, and the controversy is thus narrowed to the question of whether the extension is violative of law or public policy. See Moses v. United States, 166 U. S. 571, 17 S. Ct. 682, 41 L. Ed. 1119. It is contended by appellee that the duty of the tax collector to collect the tax and the restriction upon the Commissioner in the matter of extensions (section 56 (c), Revenue Act 1928, supra) establish the fact that the extensions granted by the collector were both violative of his legal duty and of the policy declared by Congress in regard to extensions. The power of the collector to take a bond running to the United States to secure the payment of a tax he is charged with the duty of collecting in consideration for delay in collecting the tax is well established, regardless of whether or not the tax is immediately due and collectible. See discussion of Supreme Court in Graham v. Goodcell, 282 U. S. 409, 422, 51 S. Ct. 186, 75 L. Ed. 415, as to a "voluntary stay" granted by the collector and recognized by Congress. In a recent well-considered case by District Judge Lindley, United States v. Converse Cooperage Co. (D. C.) 42 F.(2d) 227, 228, an action on such a bond was sustained. No such bond was authorized by the Revenue Act of 1918. The applicable rule is thus stated by Judge Lindley: "The conclusion is that Congress has tacitly approved of the exercise of discretionary administrative power in the collection and abatement of taxes. Just as the Secretary of the Treasury in the case of United States v. Tingey 5 Pet. 115, 8 L. Ed. 66, and the Secretary of War in the case of Moses v. United States, were held to be representatives of the sovereign, who might in the administration of their office properly accept bonds, for which there was no statutory authority, so the Secretary of the Treasury and the Commissioner of Internal Revenue in this case charged with the collection, abatement, and refunding of revenue, and impliedly, at least, vested by Congress with wide discretion in the procedure of performing his administrative duties as a representative...