United States v. Worley, 11975

• Decision Date: 02 June 1954
• Docket Number: No. 11975,11976.,11975
• Citation: 213 F.2d 509
• Parties: UNITED STATES v. WORLEY et al. DUNN v. WORLEY et al.
• Court: U.S. Court of Appeals — Sixth Circuit

213 F.2d 509 (1954)

UNITED STATES v. WORLEY et al.

DUNN v. WORLEY et al.

Nos. 11975, 11976.

United States Court of Appeals, Sixth Circuit.

June 2, 1954.

James Q. Riordan, Washington, D. C. (H. Brian Holland, Ellis N. Slack, A. F. Prescott, Washington, D. C., Fred Elledge, Jr., James M. Swiggart, Nashville, Tenn., on the brief), for the United States.

Charlotte Worley, in pro. per. (W. Raymond Denney, Nashville, Tenn., on the brief).

Robert W. Sturdivant, Nashville, Tenn. (Wm. J. Harbison, Nashville, Tenn., on the brief), for Ross V. Dunn, trustee.

W. Raymond Denney, Nashville, Tenn., as guardian ad litem.

Before SIMONS, Chief Judge, and ALLEN and MILLER, Circuit Judges.

SIMONS, Chief Judge.

The controlling questions posed in these appeals involve title to real estate claimed by the trustee of a bankrupt corporation which acquired it from a predecessor partnership, the priority of liens filed by the United States for income taxes due from the individual members of the partnership, and the validity of a judgment entered against the United States.

In 1939, William Hoyt Elliott and Claude H. Worley became partners in a merchandising business in Nashville, Tennessee, under the firm name of National Specialty Company. On Nov. 20, 1942, the partnership purchased two tracts of land in Nashville with partnership funds and for partnership purposes and received conveyances of such tracts to the partnership. On November 12, 1946, the partnership purchased a third parcel also with partnership funds for partnership purposes with a like conveyance to the partnership. On November 5, 1945, Worley and his wife entered into a separation agreement which recited that Mrs. Worley was to be paid one-half of Worley's drawing account from the partnership, one-half of its profits when distributed and, in the event of dissolution, one-half of the capital interest of Worley in the partnership. The agreement included a provision that Mrs. Worley would, out of the funds so provided, give proper care and attention to the child of the contracting parties. It was further provided that a copy of the agreement should be transmitted to the partnership, and become effective as an assignment. The copy was so transmitted and its receipt acknowledged by the partnership which agreed to make the payments directed therein.

On November 20, 1947, the United States filed notices of tax liens against Elliott and against Worley for delinquent income taxes assessed against each individually for the period 1943 to 1946, inclusive. On December 10, 1947, the partnership mortgaged one of its pieces of real estate to the Pilot Life Insurance Company to secure the payment of a $40,000 loan made to it by the company. Subsequently, the proceeds of the loan were paid to the United States by Elliott and Worley, in partial satisfaction of their respective income tax liabilities — $20,000 on behalf of each. On January 1, 1948, Worley and Elliott formed a corporation under the style of the National Specialty Company and on the same date made a written offer, in the name of the partnership, to sell the entire assets of the business to the corporation, upon consideration of the issuance by the corporation to each of the partners of 800 shares of its capital stock and notes of the corporation for a balance of the purchase price. The offer recited that the interest of Worley in the corporation would be subject to an indebtedness by him to the corporation for which he was to give his note with his stock pledged as collateral security for its payment. The corporation accepted the offer and noted acceptance upon its minutes. The corporation thereupon took possession of all of the assets of the partnership and continued its business at the same location. On or about January 12, 1948, the partnership ceased to do business. Worley's shares of stock pledged as collateral to his note were surrendered to him by the corporation for the purpose of procuring a loan for the company. Though the loan was never negotiated, the stock was never returned to the corporation and is now in the possession of Mrs. Worley. Worley died September 27, 1949 leaving his widow (the appellee Charlotte Worley) and a minor son C. H. Worley, Jr., surviving. Prior to Worley's death, no instruments of conveyance had been executed by the partnership to the corporation. Upon discovery of the oversight, Elliott, as surviving partner, on October 6, 1950 and October 17, 1950, deeded each of the three parcels of land to the corporation.

On May 25, 1951, an involuntary petition in bankruptcy was filed against the corporation and a proposal for an arrangement under Chapter 11 proving abortive, the corporation was adjudicated bankrupt on August 6, 1951 and the appellant Dunn appointed as its trustee. He filed a petition with the referee listing the three parcels of real estate, reciting that they had been partnership assets, that one parcel was subject to a lien due the Pilot Life Insurance Company, that the United States claimed prior liens on all three tracts for the payment of individual income taxes of Elliott and Worley and seeking to have declared the status of the three tracts, in respect to title and the validity of the liens. All persons in interest were made parties. Charlotte Worley answered that she was the owner of one-fourth interest in all of the real estate by virtue of the separation agreement with her husband and the Pilot Life Insurance Company asserted priority over the United States under its deed of trust. The United States having filed a civil action in the District Court to foreclose its liens, its suit was consolidated with the bankruptcy proceedings by order of the court, on December 24, 1951, and the whole controversy referred to the referee in bankruptcy.

The referee held that the trustee in bankruptcy had valid title to all three parcels of real estate, subject only to the lien of the Pilot Life Insurance Company upon the Woodland Street property; that the United States held no valid tax liens against the partnership real property for debts owed by the partners individually; that Mrs. Worley either individually or as administratrix, or as the guardian of her son, had no right, title or interest in any specific property of the partnership, by reason of the separation...