United States v. Davidson

WALLER, Circuit Judge

(concurring in part and dissenting in part).

I concur in the majority view that a decree for the. foreclosure of the asserted tax lien could not be entered against the United States, nor could costs be awarded against it. I further agree that the United States did not have the legal title on January 1, 1937. But it is my conclusion that the equitable title was in the United States prior to the above date and, therefore, the property was not subject to taxation on that date.

A fuller statement of the facts than appears in the majority opinion is considered necessary in order to present my views understandingly.

A factual recapitulation reveals the following sequence of events:

(a) On June 12, 1936, the Grain Corporation, the sole stockholder of the Warehouse Corporation, agreed to transfer, as of June 30, 1936, to the Farm Credit Administration all of its assets and all of the assets of its wholly-owned subsidiary and to cause its subsidiary to perform whatever acts were necessary to accomplish the transfer.

(b) A conveyance on October 31, 1936, from the Grain Corporation to the United States of all the assets owned by it on June 30, 1936, “in fulfillment of the agreement of June 12, 1936”, and a covenant to take such action and execute such further instruments as may be necessary.

(c) An instrument dated the 7th day of November, 1936, between the Warehouse Corporation and the Grain Corporation, conveying to the Grain Corporation all of the assets of the Warehouse Corporation as of the close of business June 30, 1936, in express recognition of, and for the purpose of carrying out, the agreement of June 12, 1936, between the Grain Corporation and the Farm Credit Administration.

(d) A lease from the United States to the Grain Corporation, dated October 30, 1936, but as of June 30, 1936, of the Amarillo Terminal at Amarillo, Texas, conformable to the initial contract.

(e) A lease back from the Grain Corporation to the Warehouse Corporation, dated November 7, 1936, of the Amarillo, Texas, elevator, and other elevators and warehouses listed in the lease from the United States to the Grain Corporation.

(f) The quit claim deed, dated February 24, 1937, as of October 31, 1936, from the Warehouse Corporation to the United States, specifically describing the property in question.

The lower Court, and the majority of this Court, have concluded that the foregoing transactions did not place the equitable title to the premises in the United States on or before January 1, 1937, at which time the taxes in Texas became a lien upon real estate. It was the view of the lower Court, which seems to be shared in by the majority here, that the several agreements between the United States and the Grain Corporation and the Warehouse Corporation failed sufficiently to describe the premises so as to vest an equitable title in the Government, or so as to have entitled the Government to the specific performance of the contract, or so as to have complied with the statutory requirements of Texas that instruments purporting to convey land should be in writing, and that the first instrument meeting siich requirement was the deed of February 24, 1937, after the lien for taxes had matured. Upon these considerations they hold that the Government was not entitled to have an injunction against the enforcement of the taxes.

*913 It seems to be conceded, as it should be, that if the Government had the equitable title the lands would not be subject to taxation even though the Government was not seized of the legal title.

Whether or not specific performance could be had by the claimant is not the exclusive test of the ownership of an equitable title. There are numerous instances where the owner of an equitable title might not be able to enforce specific performance. Equitable rights in property may rest in parol. The equitable title might be in a party by virtue of a constructive or resulting trust, or by operation of law outside of contract.

“An equitable title exists where the legal title is vested in one person and the beneficial interest inures to another person, who may be named in the deed or who may not be named at all, whose right may exist by parol. Beringer v. Lutz, 188 Pa. 364 , 41 A. 643, 644 .” 15 Words and Phrases, Perm. Ed. 63.

“An equitable title is ‘a right or interest in land, which, not having the properties of a legal estate, but being merely a right of which courts of equity will take notice, it requires the aid of such court to make it available.’ ” Sebring Co. v. O’Rourke, 101 Fla. 885 , 134 So. 556, 559 ; Pogue v. Simon, 47 Or. 6 , 81 P. 566 , 114 Am.St.Rep. 903 , 8 Ann.Cas. 474; 1 Bouv. Law Dict., Rawles Third Revision, p. 680.

In 15 Words and Phrases, Perm.Ed., p. 64, we find the following definition: “Equitable title is a right imperfect at law, but which may be perfected by the aid of a court of chancery * * * by compelling parties to do that which in good faith they are bound to do, or removing obstacles interposed in bad faith to the prejudice of another.”

An application of the test of whether specific performance could be decreed in the present case is altogether inapt. Cases for specific performance of land sale contracts arise between the parties to the contract, or their privies, in which the parties defendant raise the issue of insufficient description. In the present case neither party to the contract has contended that the description is insufficient. In fact, the descriptions in the various instruments appear to have been entirely satisfactory to the parties to the contracts. Each party knew what property was intended to be conveyed. The Tax Collector, a stranger, seeks to raise the question, when the sufficiency of description was never raised by the parties, but on the contrary the owner of the legal title, in due course, executed a deed by proper description, confirming, ratifying, and making certain the description and the intent of the parties in the initial and subsequent instruments. It is difficult to see how a third party, who was neither a creditor nor purchaser, could raise the question of description when the parties to the contract were satisfied with it and carried out the contracts without controversy. The Tax Collector does not stand in the relation of an innogent purchaser or creditor. He is not interested in the rights of individuals but has a lien on the property of either party to a land contract, and the fact that the property of the United States is not the subject of taxation does not invest him with a right to question the contract. Even in a suit for specific performance wherein the description was general and indefinite, if both parties to the contract were in agreement that the premises in controversy were definitely known and understood by them, no Court would refuse specific performance of the contract on the ground of insufficiency of the description.

Where mutual mistake in the description is the only defect in an instrument the purchaser would resort to a proceeding for the reformation of the instrument rather than its specific performance.

The intent, purpose, and acts of the parties are the determinative factors in the creation of an equitable title — not the effectiveness of specific performance. It is possible for one to be the owner of an equitable title and be without any remedy because of lack of proof or because of intervening equities of third parties.

Nor is it necessary in this case to resort to the maxim, “Id certum est quod certum reddi potest”, because the parties to the contract appear to have experienced no uncertainty as to description, and especially when the uncertainty was later reduced to certainty by a definite description of the property, which expressly related back to October 31, 1936, thereby converting the equitable title into a legal title.

The Government’s claim to an equitable title is not dependent solely upon the deed from the Grain Corporation to the Government under date of October 31, 1936. It will be remembered that on June 12, 1936, *914 the Grain Corporation obligated itself to transfer all of its assets to the United States and to cause its subsidiaries to perform such acts as would bring about the transfer to the United States of all assets of the subsidiaries. It is true that the title to the Amarillo elevator site was then in the Warehouse Corporation, and it is true that the deed from the Grain Corporation to the United States under date of October 31, 1936, did not undertake to convey any property other than that owned by the Grain Corporation. Nevertheless, since the Grain Corporation owned all of the stock in the Warehouse Corporation, and, therefore, had complete power to operate the affairs of the latter, so long as the rights of innocent third parties were not invaded, it was bound by its contract of June 12, 1936, to cause a conveyance to be made from the Warehouse Corporation. It had all the stock of the Warehouse Corporation, which was not shown to be insolvent, and it could vote the stock for the sale of the corporation property. It, as sole stockholder, could thus order the directors and officers to sell. Certainly the sole stockholder of a corporation, in the absence of fraud or the intervening rights or equities of third parties or creditors in due course, has the right to bind its wholly-owned corporation to a contract to convey its property for a valid consideration. 1 It certainly could not be disputed that the sole stockholder of a corporation is at least an authorized agent of the corporation in such circumstances. In this case the sole stockholder of the subsidiary agreed with the United States on June 12, 1936, to transfer its assets to the United States and to cause its subsidiary to perform such acts as to accomplish the transfer of the assets of its subsidiary. On November 7, 1936, it entered into a contract as of June 30, 1936, with the Warehouse Corporation for the fulfillment of the contract of June 12, 1936, and in which contract of November 7 the Warehouse Corporation did transfer, convey, assign, and deliver to the Grain Corporation all of its assets as of June 30, 1936. This instrument affirmatively shows that the conveyance was made by the Warehouse Corporation to the Grain Corporation for the expressed purpose of carrying out the contract of the Grain Corporation to the United States of June 12, 1936, and for the consideration that would flow to each of the companies under said agreement of June 12, 1936. Even if the Grain Corporation had thereafter refused to execute a formal deed to the United States, a court of equity would have decreed it to have acquired the property for the United States, in fulfillment of its contract with the United States, and, therefore, it would be held to be a trustee for the United States of the legal title.

The majority opinion states that: “The record contains no evidence to establish that the United States or any of its agencies have yet performed the contractual obligations undertaken by it. Under such circumstances a court of equity has no power to compel performance until the one demanding it has matured his right thereto by performance or a tender of performance of all conditions precedent to the creation of an equitable right in him.”

Who is seeking a Court to compel performance? Not the parties to the agreements. Who raises the question of any failure on the part of the United States to perform? Not the parties to the agreement. The Tax Collector never raised it. The authority of the majority of this Court to raise it is gravely questioned. The record does not contain a vestige of evidence even tending to show lack of performance by the United States of- its obligations, or tender of performance, before January 1, 1937.

But the record does show that the United States leased the property back to, the Grain Corporation and the Warehouse Corporation in turn leased it back from the Grain Corporation and paid to the United States $414.08 rental per month from June 30, 1936, thenceforth. The leasing back of this property was one of the obligations which the United States agreed to perform which it did perform. It would seem most unusual for a corporation to pay rental of $414.08 per month for the use of its own *915 property, or to its contractee if the contractee was in substantial default in its obligation to the corporation. These facts create a presumption, in the absence of evidence to the contrary, of no lack of performance by the United States. When the deed of February 24, 1937, was executed, why was it executed “as of October 31, 1936”, if the United States had not carried out its part of the bargain as of that date ?

Even if we were to consider the sole stockholder as having acted without authority to act for the Warehouse Corporation, we find that the Warehouse Corporation not only ratified the acts of its agent by subsequently making a deed in conformity with the agreement of its agent, but it also, on November 7, 1936, accepted a lease back from the Grain Corporation, which in turn had secured and accepted a lease from the United States to the premises. Thus by: (a) its acceptance of the lease, (b) its attornment under the lease, and (c) its ratification of the entire agreement by its parent, it would be estopped to question the authority of the Grain Corporation to make the contract. The Grain Corporation, by virtue of : (a) its contract, (b) the fact that it obtained the deed from the Warehouse Corporation for the purpose of carrying out its contract with the Government, (c) its covenant with the Government to acquire the property for the Government, and (d) its attornment to the United States, would likewise be estopped to assert title against the Government, either legal or equitable, and, whether or not its after-acquired title inured to the United States, it at least was a trustee of the legal title for the United States with the equitable or beneficial title in the United States.

After the Grain Corporation contracted with the United States to cause its subsidiaries to convey to the United States, and to perform such other acts as were necessary to accomplish the purposes of the agreement, and after its acquisition of a deed from the Warehouse Corporation “in fulfillment” of its contract to the United States, equity might properly consider the title as having inured to the benefit of its contractee so as to create an equitable title by estoppel.

No one disputes that unrecorded and unacknowledged deeds are void, in Texas, as to innocent purchasers and creditors, hut such instruments are binding on the parties thereto, 2 and most assuredly must that be so when the parties have asserted no invalidity, and when there is no innocent purchaser, and when a tax obligation in Texas does not create the relation of debtor and creditor. The Tax Collector is not a creditor for a valuable consideration without notice, because the assessment is against the property and not the owner, and contracts of the owner do not affect taxes.

In view of the fact, therefore, that the equitable title was in tbe United States, the lands were not subject to taxation on January 1, 1937, and the Court below should have granted the injunction sought and decreed the lien of the several taxing units to be void.

The Judgment below should be reversed, set aside, and vacated, with directions to the Court below to enter Judgment for the Plaintiff.

In Volume 19 C. J. S., Corporations, page 472, § 1004, it is said: “* * * but the trend of authority is to uphold as binding on the corporation acts or contracts on its behalf by a person or persons owning all or practically all the stock, even though there is a lack of, or defect in, some corporate step or action.”

Numerous cases are cited in support of the text, including the case of Computing Scale Company v. Toledo Computing Scale Company, 7 Cir., 279 F. 648 , holding that the assignment of a patent in the name and on behalf of a corporation by all of its stockholders conveyed at least a full equitable title.

Article 6627 of the Texas Revised Civil Statutes reads as follows: “All bargains, sales and other conveyances whatever, of any land, tenements and hereditaments, whether they may be made for passing any estate of freehold of inheritance or for a term of years; and deeds of settlement upon marriage, whether land, money or other personal thing; and all deeds of trust and mortgages shall be void as to all creditors and subsequent purchasers for a valuable consideration without notice, unless they shall be acknowledged or proved and filed with the clerk, to be recorded as required by law; but the same as between the parties and their heirs, and as to all subsequent purchasers, with notice thereof or without valuable consideration, shall be valid and binding.”