Court Opinion

ID: 9664064
Source: CourtListenerOpinion
Date Created: 2023-08-24 00:01:24.170207+00
Date Added: 2024-06-11T12:47:29.363333
License: Public Domain

WHITAKER, Judge
(dissenting).
When this case was presented on oral argument I gained the impression, both from the statements of counsel for the plaintiff and for the defendant, that plaintiff and the company of which he was general manager had not acted under any misapprehension as to what were the facts governing their rights. I gained the impression that plaintiff had caused the company to pay him his bonus, based upon the company’s profits before deduction of taxes, although he was fully aware that he was only entitled to a bonus on profits after deduction of taxes. But, apparently, I was mistaken.
The Commissioner of this court has found that when plaintiff directed the payment to himself of the bonus, computed on income before taxes, he believed that under his agreement with the company he was entitled thereto. Defendant took no exception to this finding. Plaintiff’s exception only accentuates the fact that plaintiff honestly believed that he was entitled to have it computed on this basis.
Plaintiff, after his discharge as manager, brought suit against his company for an additional amount to which he said he was entitled as a bonus under his agreement, and in his testimony in this suit he stated the agreement between him and the company was that his bonus should be computed on profits before taxes. The Circuit Court for Cook County, Illinois, where the suit was brought, held that plaintiff had believed that he was entitled to a bonus computed on this basis, but that this belief was erroneous..
This court has concurred in these findings.
This case, therefore, does not come within the rule of Commissioner of Internal Revenue v. Wilcox, 327 U.S. 404, 66 S.Ct. 546, 90 L.Ed. 752, 166 A.L.R. 884, where it was held that funds embezzled were not income to the embezzler, because he did not claim the funds as of right, thus distinguishing the case of North American Oil Consolidated v. Burnet, 286 U.S. 417, 52 S. Ct. 613, 76 L.Ed. 1197. In the case at bar this plaintiff, according to the findings, did honestly claim that he was entitled to the bonus paid him. He claimed it as of right.
Not coming within Commissioner of Internal Revenue v. Wilcox, supra, it would appear that the case comes within the rule laid down in the North American Oil Consolidated case, supra. In that case, and in numerous others, it was held that money received under a claim of right is income in the year received, although the recipient was mistaken in his claim of right, and later had to return the money. See, e. g., C. I. R. v. Alamitos Land Co., 9 Cir., 112 F.2d 648; Penn v. Robertson, 4 Cir., 115 F.2d 167; National City Bank of New York v. Helvering, 2 Cir., 98 F.2d 93; Saunders v. Commissioner of I. R., 10 Cir., 101 F.2d 407; Haberkorn v. United States, 6 Cir., 173 F.2d 587.
This court in a per curiam opinion in Schramm v. United States, 36 F.Supp. 1021, 93 Ct.Cl. 181, adhered to this rule.
But it is said that in Greenwald v. United States, 57 F.Supp. 973, 102 Ct.Cl. 272, we held that money received under a mistake of fact was not income to the recipient, and that under this rule the excess bonus received by plaintiff was not income to him. In the case relied upon both the corpora*1023tion and its officer were misled as to the corporation’s income, due to falsification of the books by the company’s auditor. Both parties were mistaken as to the fact of the amount of the company’s income.
Here, plaintiff and the president of his company had a conversation in 1941 as to the basis for the computation of plaintiff’s bonus. As a result of this conversation the president believed that the agreement was that plaintiff’s bonus from then on would be computed on profits after taxes had been deducted. Plaintiff, however, was under a different impression, it seems. He thought the agreement was not intended to apply indefinitely, but that the former agreement, that it should be computed on profits before taxes had been deducted, would be restored at some later time, and that in 1944 he thought the year had arrived for this former agreement to be restored.
This falls far short of a mutual mistake of fact sufficient to set aside or reform a contract. Whatever mistake there may have been, it certainly was not mutual.
The situation was no different from that which gives rise to innumerable law suits: one party says the agreement was one thing, and the other party says it was another.
It seems impossible to me to bring this case within the decision in the Greenwald case, supra.
Nor can it be brought within the decision in Gárgaro v. United States, 73 F.Supp. 973, 109 Ct.Cl. 528. The basis of that decision) was that both parties thought the corporation’s income was a certain amount, whereas it turned out to be a smaller amount.. Here there was no mutual mistake of fact; instead there was a dispute as to what the facts were.
I am of opinion this case comes within' the rule of the North American Oil Consolidated case, and does not come within any exception to that rule, nor, under the findings of fact, within any exception that should be made to that rule. Under the findings plaintiff claimed the income, honestly believing he was entitled to it, and he retained it, until, in a later year, he was forced by court order to return it. In such case he is liable for the taxes incident to it in the year received. See Heiner v. Mellon, 304 U.S. 271, 58 S.Ct. 926, 82 L.Ed. 1337; Burnet v. Sandford & Brooks Co., 282 U.S. 359, 51 S.Ct. 150, 75 L.Ed. 383; Security Flour Mills Co. v. Commissioner, of Int. Rev., 321 U.S. 281, 286-287, 64 S.Ct. 596, 88: L.Ed. 725.
I must respectfully dissent.