Court Opinion

ID: 9650878
Source: CourtListenerOpinion
Date Created: 2023-08-23 15:53:48.642045+00
Date Added: 2024-06-11T18:12:26.583298
License: Public Domain

MAJOR, Circuit Judge
.(dissenting).
I disagree with that part of the opinion relative to the 1937 income tax and the 1937 Social Security taxes — Title IX. Insofar as the judgment is predicated upon these two items, I think it should be reversed. In other respects, I approve.
It is important to keep in mind that the plaintiff’s sole right to recover is predicated upon the Bulk Sales Act of Illinois. It so declared in its complaint, and the case was tried and decided on that theory. We, therefore, are not concerned with rights which plaintiff might have had if some other procedure had been invoked.
I desire to direct my thought to two inquiries — (1) Was plaintiff a creditor of New Dahl on November 22, 1937, within the meaning of the Illinois Bulk Sales Act? and (2) if so, was there any competent proof of such fact? In my opinion, both questions must be answered in the negative. As to whether plaintiff was a creditor must be determined by the construction given that term by the Illinois courts. The opinion states: “It is not restricted to those creditors whose claims, at the time of the sale, were liquidated as to the amount.” In my view, this is a misinterpretation of the Illinois cases. In Superior Plating Works v. Art Metal Crafts Co., 218 Ul.App. 148, a suit to recover damages for breach of contract, in considering whether a claimant was a creditor within the meaning of the Act, the court, in deciding to the contrary, on page 151 of 218 Illl.App., said: “* * * We think it clearly should not be applied to parties holding claims in tort, and the same reasoning would lead us to'conclude that the holder of a claim, such as this one, which was uncertain, unliquidated and contingent, would not be a creditor with*581in the meaning of the act. * * * ” This holding was cited with approval in Stony Island T. & S. Bk. v. Stony Island St. S. Bk., 240 Ill.App. 195, a tort case where the same question was presented. Again, in Smead Co., Inc., v. Johnson, Inc., 262 Ill.App. 385, a suit for breach of contract, it was argued that the term creditor should receive a liberal construction so as to include one who has a claim of any sort, whether absolute or contingent. The court rejected this argument and held at page 388 of 262 Ill.App.: “Where the claim is uncertain and contingent the claimant should not be considered a creditor.” In this opinion are cited a number of Illinois cases to the effect that a claim for the difference between the contract price of goods sold and the market value is un-liquidated. In Lawndale Sash & Door Co. v. West Side Trust and Savings Bank et al., 207 Ill.App. 3, it was held that a lessor was not a creditor at the time of a bulk sale as to future payments provided for in a written lease, on the theory that such payments were contingent upon occupancy.
The Statute requires, as suggested in the opinion, that the claim be owing, and the Illinois courts generally have held that it must be certain, liquidated and not contingent. In my opinion there is little room for affirmative argument that plaintiff, at the time of the sale in question, had a claim against New Dahl which was owing, certain, liquidated and not contingent. No case is cited by the plaintiff which affords any support to its contention in this respect unless it be that of Shepard v. Commissioner, 7 Cir., 101 F.2d 595. It is true we held that a tax may be a debt, and we construed the term “existing debts” to include Federal income taxes subsequently assessed by the Commissioner. In that case, however, the court was not construing the term “creditor” as used in the Illinois Act, but was construing a term used by the parties to an agreement, and took into consideration the understanding and intention of the parties thereto. I doubt that this decision has any bearing upon the instant situation.
Just what claim, if any, the Government has against the income of a citizen as it is received, need not be determined. Whatever be its nature, it seems apparent that it is neither certain nor liquidated, and it is equally obvious that it is contingent upon numerous future events. Such uncertainties and contingencies persist at least until the end of the taxable year. The tax can not be assessed until a return is made, which is not required until March of the following year. Being assessed upon net income, the amount is dependent upon deductions which Congress has provided in the form of personal exemptions, ordinary and necessary business expenses, interest paid on indebtedness, taxes paid, losses, depreciation, depletion and other items not necessary to mention. Would any one contend that he could, today, determine the amount of his income tax for 1942? In addition to the contingencies suggested, the law applicable to the situation has not been enacted. That is a matter which Congress may determine tomorrow, next November, or even at a later time. I suppose, however, that under the opinion, a vendee of this date, under the Bulk Sales Act, would be obligated to recognize the Government as a creditor with a claim, owing, liquidated and certain in amount. It is immaterial that “a reliable approximation of the liability could have been prepared and sent to the Government” unless the plaintiff was a creditor within the meaning of the Act, which, in my judgment, it was not.
The only proof in support of the amount of plaintiff’s claim is the income tax return filed by New Dahl March 10, 1938, and the delinquent return under Title IX filed April 12, 1938, both admitted over objection. Thus, the returns made in March and April, 1938, by New Dahl (not a party to the instant litigation) were held to be admissible to prove an essential fact claimed to have existed on November 22, 1937. On what theory these ex parte statements, made long subsequent to the event in controversy, are admissible against the defendant, is not clear. The feeble reason is advanced that they are declarations against interest. Assuming this is correct as to New Dahl, how could they be declarations against interest as to the defendant, who was not a party to, and had nothing to do with, their utterance? Plaintiff and the opinion rely upon Tameling v. Commissioner, 2 Cir., 43 F.2d 814 in support of the admissibility of these returns. That case, however, was a suit between the Commissioner and the taxpayer who had made the return. It would be applicable to the instant situation if the suit were between plaintiff and New Dahl. No rule of evidence is cited, how*582ever, and I know ■ of none which would make them admissible against a third party, as was done.
After holding this evidence admissible, it is said to establish a prima facie liability, and that the defendant had the burden of proving any inaccuracies in these ex parte declarations. This overlooks the fact that the burden was upon the plaintiff to establish its complaint by competent evidence. The record discloses that the returns were not filed until after New Dahl had been visited by a Revenue agent, which was the occasion for a controversy between New Dahl and the defendant as to whether the latter was liable for the taxes. The Revenue agent made up the return, not from the books of New Dahl, but from certain figures on a sheet of paper furnished him by an agent of New Dahl.
The defendant was entitled to be confronted with the best evidence capable of production as proof that plaintiff was a creditor of New Dahl at, the time of the ■sale, and to cross-examine with reference thereto. The admission of these returns, without explanation as to the source of their contents, and without explanation as to why the books of New Dahl were not available, not only deprived defendant of the right of cross-examination, but also improperly shifted to it the burden of proof which should have been maintained by the plaintiff.