United States v. Halton Tractor Company

• Decision Date: 15 September 1958
• Docket Number: No. 15396.,15396.
• Citation: 258 F.2d 612
• Parties: UNITED STATES of America, Appellant, v. HALTON TRACTOR COMPANY, Inc., a Corporation, and Wes Durston, Inc., a Corporation, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

258 F.2d 612 (1958)

UNITED STATES of America, Appellant, v. HALTON TRACTOR COMPANY, Inc., a Corporation, and Wes Durston, Inc., a Corporation, Appellees.

No. 15396.

United States Court of Appeals Ninth Circuit.

July 23, 1958.

Rehearing Denied September 15, 1958.

Charles K. Rice, Asst. Atty. Gen., Helen Buckley, A. F. Prescott, George F. Lynch, Attorneys, Department of Justice, Washington, D. C., Lloyd H. Burke, U. S. Atty., Marvin D. Morgenstein, Asst. U. S. Atty., San Francisco, Cal., for appellant.

Henry M. Jones, Roy A. Sharff, San Francisco, Cal., for appellees.

Before STEPHENS, POPE and HAMLEY, Circuit Judges.

POPE, Circuit Judge.

Halton Tractor Company, Inc., a corporation, here called Halton, and Wes Durston, Inc., a corporation, here called Durston, both filed actions seeking to recover, as wrongfully collected, sums which they paid to the Collector of Internal Revenue, for social security and withholding taxes owing by one Lloyd H. Watson. In each case judgment was for the plaintiffs from which the United States has appealed.

Prior to January, 1948, Watson, a contractor, had purchased from each of these corporations, various items of heavy machinery including tractors, scrapers and land levellers. To secure payment of the balance of the purchase price on such equipment, Watson had executed a conditional sales contract dated March 13, 1947, to Durston, and a conditional sales contract dated April 19, 1947, to Halton. He also executed under date of March 24, 1947, a chattel mortgage to Morris Plan Company describing certain other similar equipment, given to secure payment of a note for $47,100.¹ Durston assigned its conditional sales contract to C.I.T. Corporation, guaranteeing payment thereof.

On September 16, 1947, Watson was indebted to the United States for withholding and social security taxes in the sum of $9777.97. On that date the Government filed in the local county recorder's office its notice of tax lien against Watson. On September 29, 1947, pursuant to a request by Watson that Halton refinance his loan from Morris Plan so as to provide smaller payments over a longer period, Halton paid the balance due under the Morris Plan mortgage and on October 2, following, took a new chattel mortgage to itself covering the equipment described in the Morris Plan mortgage and a few additional items of equipment belonging to Watson. In November or December of that year Watson notified Halton and Durston that he was in default upon all these obligations. He then moved all of the equipment, here mentioned, including that purchased from Durston, to Halton's yards at Los Banos, California.

It appears that in the dealings with the Government or its agents, which followed, Edward H. Halton, President of Halton Tractor Company, acted not only on behalf of Halton but on behalf of Durston as well. These negotiations or dealings occurred in the month of January, 1948. At that time, Francis J. Reilly, a deputy collector of Internal Revenue, purported to seize all the machinery and equipment referred to as the property of Watson. He attached to each piece of machinery a tape on which was a written statement that it was "Property of the United States Government (Notice of Seizure)", and informed both Halton and Durston, through Halton, that he intended to proceed to sell the machinery and equipment to satisfy the indebtedness of Watson to the United States. The trial court found that Reilly then informed both plaintiffs that their claimed rights to the machinery were inferior to the rights of the United States under the latter's lien; that believing this statement to be true, and to save themselves from financial loss and to prevent the loss from sale of machinery and equipment, Halton paid to the United States the sum of $5877.97 and Durston paid the sum of $3900 (making the total sum of $9777.97 above mentioned). The court also found as follows: "VII. That at all times prior to and at the time of the payment of said sum of money by plaintiff to defendant, it believed that if said Francis J. Reilly proceeded to sell said equipment as he threatened, the same would be taken from the possession of plaintiff by the purchasers at such sale and forever lost to plaintiff. VIII. That said Francis J. Reilly, at said times prior to the payment of said sums of money by plaintiff to the defendant, informed plaintiff, and plaintiff believed that the only method by which plaintiff could proceed to protect its rights in the situation was by paying to the Department of Internal Revenue the amount of said taxes due from said Lloyd H. Watson and then file a claim for refund from the United States of America upon the ground it had paid the taxes due from someone else, to-wit, Lloyd H. Watson."

After these payments had been made, Halton and Durston proceeded to repair and recondition the machinery and equipment and sold it at retail prices realizing what they could from it. Each plaintiff duly filed its claim for refund of the aforesaid sums in the office of the Collector of Internal Revenue. The claims were rejected and these suits followed.

Upon this appeal the Government makes three contentions:

1. That the plaintiffs cannot recover because they volunteered to pay the taxes in question to obtain a release of the Government's lien, and in the absence of proof of payment under duress, (which it says was not present), recovery cannot be had;

2. Plaintiffs collected from their sales of the machinery sufficient sums to make them whole and having suffered no loss they cannot maintain these actions; and

3. That the Government's tax lien was superior to the lien of Halton Tractor Company.

In the court below the two cases were consolidated for trial and the appeals from the two judgments were argued together and presented in the same briefs. The questions raised here can be understood more readily if we treat each case separately, and since the appeal from the judgment in favor of Durston presents fewer questions than does the other case, we shall deal with that one first.

The Appeal from the Judgment for Durston

As indicated above, when Durston paid the Government the $3900, its primary interest in the conditional sales contract covering the equipment sold by it was as guarantor of the paper which had been assigned to the C.I.T. Corporation. Later, in March, 1948, as the contract was in default, Durston was required to and did pay the amount then due on it or $30,100, and thus repurchased the contract. In August, 1948, Durston moved the equipment to Los Angeles where he reconditioned it and thereafter sold it for a total of $30,500. It had expended something over $1000 in replacing missing tires and parts. Thus Durston was out $30,100, the amount paid C.I.T. Corporation, plus $1000, or more. It is thus apparent that so far as Durston is concerned, it was then still out all of the sum it had paid on the Watson taxes.

It is also clear that Durston's interest in the equipment was at all times superior to the Government's claim of lien. Its rights stem from the conditional sales contract of March 13, 1947, and the Government's tax lien could not apply prior to its filing on September 16, thereafter. When Durston paid the $3900, it paid a sum for which it was in no manner responsible and which it was not required to pay in order to enforce its own claim against the property. To this extent this was a sum the Collector had "wrongfully collected" within the meaning of Sec. 3772 (a) (1), Int.Rev.Code, 1939,² Parsons v. Anglim, 9 Cir., 143 F.2d 534, 536, 154 A.L.R. 153.³

The trial court met the Government's claim that recovery of this sum could not be had by Durston because the payment had been a voluntary one by treating that payment, as well as the payment by Halton, as one made under duress. The court's opinion states: "In view of these facts it is the opinion and conclusion of this Court that plaintiffs paid Watson's taxes under duress, since they acted under an immediate and urgent necessity to prevent a seizure of their property." Plainly the court regarded its findings, here quoted, as facts disclosing payments under duress. Its formal conclusions so stated.

If this question were one necessary to a decision of this case we would have no difficulty in holding that a finding of duress could not be said to be clearly erroneous. Here the deputy collector had undertaken to seize the equipment on which Durston had its lien by pasting stickers on each piece declaring it to be the property of the United States. From Durston's point of view, it was required to yield to the demand implicit in this unlawful seizure or else risk losing the opportunity to sell and liquidate the property in an orderly manner. A forced sale by the Government, as threatened, would have resulted in substantial loss to Durston whose one chance of getting out whole or anywhere near it was to recondition the property and sell it at retail. Under presently recognized rules of law duress may arise from "business compulsion". See Thompson v. Deal, 67 App.D.C. 327, 92 F.2d 478, 484, quoted in a footnote in Richfield Oil Co. v. United States, 9 Cir., 248 F.2d 217, 222; see also annotation, "Relaxation of the common law rule regarding recovery of voluntary payment", 75 A.L.R. 658; and the discussion in Swift & Courtney & Beecher Co. v. United States, 111 U.S. 22, 29, 4 S.Ct. 244, 247, 28 L.Ed. 341, quoting from Maxwell v. Griswold, 10 How. 242-256, 13 L.Ed. 405 as follows: "Now, it can hardly be meant, in this class of cases, that to make a payment involuntary, it should be by actual violence or any physical duress. It suffices, if the payment is caused on the one part by an illegal demand, and made on the other part reluctantly, and in consequence of that illegality, and without being able to regain possession of his property, except by submitting to the payment."

Under the rules previously laid down by this court, and its interpretation of the language of ...