United States v. Metropolitan Life Ins. Co., 297.

• Decision Date: 15 July 1942
• Docket Number: No. 297.,297.
• Citation: 130 F.2d 149
• Parties: UNITED STATES v. METROPOLITAN LIFE INS. CO. et al.
• Court: U.S. Court of Appeals — Second Circuit

130 F.2d 149 (1942)

UNITED STATES v. METROPOLITAN LIFE INS. CO. et al.

No. 297.

Circuit Court of Appeals, Second Circuit.

July 15, 1942.

Jerome H. Doran, Asst. U. S. Atty., and Mathias F. Correa, U. S. Atty., both of New York City, for appellant.

Frederick H. Nash, of Boston, Mass., and William B. Moore, of New York City (Tanner, Sillcocks & Friend, of New York City, of counsel), for appellee.

Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

The plaintiff appeals from a summary judgment dismissing its complaint upon the following state of facts. The defendant, Nistle, became indebted to the plaintiff for deficiencies in income taxes assessed against him for the years 1926 and 1932. Part of these he paid but there remained due more than $5,000, none of which the plaintiff has been able to collect. Nistle had taken out two life insurance policies in the defendant company, one of which — for $1,000 — was payable to "the legal representatives of the insured," and gave the insured the option of taking the cash surrender value upon surrender of the policy. The second policy was for $30,000 and the original beneficiary was "L. Mable" (sic) "Nistle, wife"; it was taken out in 1923 and in May, 1935 the beneficiary was changed so that the wife became entitled to receive one-third of the proceeds and a daughter two-thirds. This policy also gave the insured the option of taking the cash surrender value upon surrender of the policy. In both policies the insured reserved the power to change the beneficiaries. On November 25, 1936 the plaintiff served notice on the insurance company in Pennsylvania that Nistle owed $8,187.72 in taxes, and that it thereby levied upon all his property then in its possession and all sums of money owed by it to him; and it repeated this demand on December 4, 1937. This action was commenced on May 20, 1940, by the personal service of a summons and complaint upon the insurance company; and upon Nistle on May 31, 1940 in Pennsylvania (the last having been authorized by an order of the District Court for the Southern District of New York). The policies are not in the possession of the insurance company, and the plaintiff has of course not offered to surrender them. The plaintiff asserts that its notices to the insurance company constituted a valid levy under § 3692, 26 U.S. C.A. Int.Rev.Code, and that the company's refusal to pay was a refusal to "surrender" Nistle's "property" in its "possession," which made it liable for the cash surrender value under § 3710(b).

The distress authorized by § 3690 is different from anything known to the common-law, both because it authorizes a sale of the property seized, and because it extends to other personalty than chattels. The first of these modifications appeared as early as 1791 in § 23 of Chapter XV of the laws of that year, 1 St.L. p. 204, which provided for the "distress and sale of goods of the person or persons refusing or neglecting to pay" certain excises imposed by that act. This was repeated in § 28 of the Revenue Act of 1864, 13 St.L. p. 233, the phrase there being: "it shall be lawful for such collector * * * to collect the said duties or taxes * * * by distraint and sale of the goods, chattels, or effects of the persons delinquent as aforesaid." The procedure then prescribed was in substance like the present, except that nothing was said about a levy. In 1866, 14 Stat. 107, § 9, Congress made the second modification by including in the leviable property "stocks, securities, and evidences of debt"; and a levy was required to be made "upon all property and rights to property * * * belonging to" the taxpayer. The provision for a levy became § 3188 of the Revised Statutes without change and remains unchanged at the present time (§ 3692). In 1924, § 1016 of the Revenue Act of 1924, 43 St.L. 343, the words "bank accounts," were interpolated between "securities" and "evidences of debt," and that too has remained unchanged (§ 3690). Section 3710 was not passed until 1926 when it was added in its present form. § 1114(e) and (f) of the Revenue Act of 1926, 44 St.L. 117.

Thus it appears that between 1866 and 1926 if the taxpayer's chattels were in the possession of a third person who refused to surrender them, the collector had no means of enforcing a surrender and could not make delivery in performance of his contract of sale. This put the Treasury at a disadvantage in such cases, because all that the collector could do was to sell the taxpayer's bare title, which was likely to fetch a much lower price than the chattels if delivered. Section 3710 was apparently passed to remedy this; it imposed a direct duty upon the recalcitrant holder to surrender them, and authorized an action against him for their value if he refused. It is true that this action was called a "penalty," but it was really not that, for title would undoubtedly pass upon payment, so that the holder would suffer no loss. But the action would at once determine the validity of the taxpayer's title and dispense with the need of any sale by liquidating the value of the chattels. It seems very probable that the words "rights to property," introduced in 1866 at the same time that choses in action were first made leviable, were meant to cover them as distinguished from chattels described as "property"; at least it is hard to understand what else could have been intended. Certainly the same phrase when used in § 3710(a) means what it does in § 3692, especially...