United States v. Pacific Railroad

• Decision Date: 13 March 1880
• Citation: 1 F. 97
• Parties: THE UNITED STATES v. THE PACIFIC RAILROAD and others.
• Court: U.S. District Court — Eastern District of Missouri

1 F. 97

THE UNITED STATES v. THE PACIFIC RAILROAD and others.

United States Circuit Court, E.D. Missouri.

March 13, 1880

McCRARY J.

This is a bill in equity, filed by the United States, to enforce a lien upon property, formerly owned by the Pacific Railroad for taxes amounting in the aggregate, including penalties, to something over $135,000. The tax claimed as delinquent accrued during periods of time extending from July 1, 1864 to February 28, 1871, and is the income tax, or the tax upon the receipts and profits of said company during those periods. When the tax accrued the Pacific Railroad was the owner of the property against which the lien is sought to be enforced, but since that time several large mortgages have been executed upon the same, and under a foreclosure of one of these the property was, on the sixth of September, 1876 sold to one James Baker, who, on the twenty-first day of October, 1876, conveyed the same to the Missouri Pacific Railroad Company, the present owner. The last-named company mortgaged the property November 1, 1876, to secure bonds to the amount of $4,500,000. The present owner, as well as the several lien holders, are made parties, and the prayer of the bill is for decree declaring the taxes aforesaid to be a lien on said property prior and paramount to any claim on their part, and for a foreclosure and sale. It is conceded that the tax was never assessed by any officer of the government, but it is insisted that this was not necessary, because there was an assessment by operation of law which was equally effective. The bill avers that demands were made for the payment of the taxes claimed on the second of November, 1877, and on the sixteenth of July, 1879; both dates being subsequent to the execution of the several mortgages aforesaid, and also to the purchase of the property by the present owner.

The defendants demur to the bill upon the ground that the same constitutes no cause of action, for the following, among other reasons:

'That even if the complainant has a lien it only took effect at the time the demand is averred to have been made, and so is subject to the title of the mortgagees and purchaser represented by the defendants.'

In considering the demurrer we are called upon to construe the statute under which the lien is claimed. This statute is found in the act of July 13, 1866, (14 Stat. 107,) and is also embodied in section 3186 of the Revised Statutes, and is as follows:

'And if any person, bank, association, company or corporation, liable to pay any tax, shall neglect or refuse to pay the same after demand, the amount shall be a lien in favor of the United States, from the time it was due until paid, with the interest, penalties and costs that may accrue in addition thereto, upon all property and rights to property belonging to such person, bank, association, company or corporation.'

The question is as to the meaning of the words 'upon all property and rights of property belonging to such person, bank, association, company or corporation. ' Does the language apply to the property belonging to the Pacific railroad when the taxes accrued, or only to that belonging to that company when the demand by which the lien was created was made?

It was said by Mr. Justice Miller, in United States v. Pacific Railroad, 4 Dillon, 71, that 'in construing this section it is proper to consider the extraordinary nature of this lien. It is,' he said, 'not only a lien upon the land, but is a lien upon the personal property; it is not only a lien upon property in possession, but upon all rights to property depending upon contracts, and upon unexecuted contracts; it not only creates a present lien, but it relates back. ' He further observes that the demand may be made long after the maturity of the tax, and will create a lien which relates back and establishes itself upon 'the property or rights of property of the defendant. ' The question in that case was as to the sufficiency of the demand, and the precise point now under discussion did not arise; but I think I am within the spirit of that opinion when I say that the statute should not be construed as subjecting property which has been conveyed to innocent purchasers, prior to any demand, unless this is its plain meaning. The consequences of such a ruling would be so serious and far-reaching that I should not be willing to invoke them by any doubtful interpretation. There is no limitation as to the time within which the government may proceed against persons who failed to comply with the income and other internal tax laws. I have no doubt such persons are numerous. Many of them may be insolvent now, but may have owned property, when the taxes accrued, which has since passed through many hands. The law may well be liberally construed and rigidly enforced as against the guilty, especially where they have concealed their property or otherwise attempted to evade their just obligations to the government. But if, upon making demand now, at the end of 12 or 15 years from the time when the taxes were due, the government can establish a lien upon all the property then owned by the delinquent tax payers, it would result that in most cases not the guilty, but the innocent, would be made to suffer. Such a doctrine would also unsettle the titles to real estate, since it would be impossible to know or to ascertain whether the owner has not, during the existence of the income tax law, suppressed the truth as to his receipts and earnings, or made a false return thereof. In my opinion the language of the statute does not require the construction contended for by counsel for the government. If congress had intended to make the statute so far-reaching as to subject property in the hands of the innocent purchasers, who became owners years before any step was taken by the government to assert its lien, this intention would have been plainly expressed. Such, however, is not the case. Let us examine the phraseology: 'If any person, * * liable to pay a tax, shall neglect or refuse to pay the same after demand, the amount shall be a lien in favor of the United States from the time it was due until paid, * * * upon all property, etc., belonging to such person,' etc. The statute does not say 'upon all property which may have belonged to such person when the tax accrued.'

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