Opinion
No. 348.
June 12, 1945.
Appeal from the District Court of the United States for the Southern District of New York.
Suit by Amtorg Trading Corporation against Joseph T. Higgins, Collector of Internal Revenue, Third Internal Revenue District of New York, to recover a sum collected as excise taxes. From that part of judgment which denies full recovery, plaintiff appeals, and, from that part of judgment granting partial recovery, Collector appeals.
Reversed and remanded.
This is a suit against the Collector of Internal Revenue for the recovery of $85,227.91 (plus interest) collected as excise taxes under § 612 of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, page 613. The District Court, after the Commissioner had denied the refund, allowed a recovery of about $25,000. The taxpayer appealed from that portion of the judgment which denies full recovery. The Collector appealed from that part of the judgment granting partial recovery.
Section 612 of the Revenue Act of 1932 reads as follows: "There is hereby imposed upon matches, sold by the manufacturer, producer, or importer, a tax of 2 cents per 1,000 matches, except that in the case of paper matches in books the tax shall be ½ of 1 cent per 1,000 matches."
In 1934, the Northam Trading Corporation was engaged in business as an importer and jobber of foreign merchandise. The taxpayer, Amtorg Trading Corporation, sold articles of Soviet manufacture. An affiliate of Amtorg, Am-Derutra Transport Corporation, was the forwarding agent engaged in the handling of Soviet importations through the United States Customs. On March 28, 1943, Amtorg, as seller, and Northam, as buyer, entered into an agreement providing that Amtorg deliver to Northam not less than 1,500,000 gross of matches within a period of ten months. On some of the matches the price was fixed "F.O.B. Leningrad"; if these matches were shipped from some other Soviet port, the seller was to absorb the increase in freight charges. The buyer had his choice on other shipments of a price F.O.B. Leningrad, or F.O.B. Hamburg. All duty, excise taxes, freight, landing charges, storage, and any other charges that may accrue after merchandise is placed alongside the dock in U.S.A. shall be for the Buyer's account. Storage charges on matches in excess of quantities ordered by the Buyer, * * * shall be for the Seller's account * * * Note: The above prices are based upon the existing excise tax and duties. In the event that either the duty or excise taxes on the Matches herein is changed, then the price quoted herein shall be the price for merchandise which has already arrived in the United States or is in transit. With regard to the portions of the contract not delivered at the time of the change of the said duty or excise tax, the price therefor shall be arranged by mutual agreement. In the event of failure to agree upon a price for the said undelivered portion of the contract, the Seller or Buyer shall be free to cancel the balance of the contract." The contract further provided that Amtorg grant Northam a revolving credit of $15,000 to be evidenced by a trade acceptance and secured by a guarantee by Mr. and Mrs. Schnee and a mortgage on some of Mrs. Schnee's New York property. Amtorg also reserved the right to change the price on any one of the particular brands it offered for sale to Northam.
From May 21, 1934 to December 8, 1934, eighteen shipments were made, with Amtorg listed as the ultimate consignee and were entered for warehousing at New York, Philadelphia, and Baltimore in cases marked "Amtorg." The matches were entered under two general term bonds made out in the sums of $100,000 and $250,000 and given to the Collector by Amtorg as principal and the National Surety Company as surety. Most of the bills of lading were made to the order of Amtorg and endorsed by Amtorg to Am-Derutra; a few were made directly to Am-Derutra. The entry papers listed Amtorg as owner. The matches were withdrawn from Customs by Northam by order of Amtorg. Some were taken immediately by Northam; the rest were stored in warehouses in the name of Am-Derutra. Northam paid all the warehouse charges. The pro forma invoices listed Amtorg as purchaser and Minseralsilicatexport as the seller. A consular invoice similarly listed Amtorg as purchaser. Ocean freight was paid by Am-Derutra which was reimbursed by Amtorg in turn reimbursed by Northam; the customs entries were similarly billed. Prior to December 10, 1934, Amtorg pledged some of the matches in the warehouse to the Chase National Bank. (It was not shown that the matches pledged were those involved in this suit.) By December 10, 1934, when Northam had defaulted under the contract, Amtorg sold the remaining matches in the warehouses.
The District Judge ruled, on these facts, that although the parties intended title to pass in Europe, the subsequent events indicated that the title did not pass until after the arrival in the United States. He held, therefore, that Amtorg was liable for the sale as the importer.
Amtorg introduced two letters and a statement sent by Northam to Amtorg to prove that Northam had already paid the excise taxes on some of the matches in question. The judge awarded a refund of some $25,000 to Amtorg for the taxes already paid. As indicated above, both sides appealed from the judgment.
David Drucker, of New York City (Paul O'Dwyer, of New York City, of counsel), for plaintiff.
John F.X. McGohey, of New York City (John B. Creegan, of New York City, of counsel), for defendant.
Before SWAN, CHASE, and FRANK, Circuit Judges.
1. The primary problem raised by these appeals is whether the "sale" of the matches, as that term is defined in the statute, took place in the United States or in Europe. Only if the "sale" took place in the United States is the taxpayer liable for the excise tax. Cf. Indian Motorcycle Co. v. United States, 283 U.S. 570, 51 S.Ct. 601, 75 L.Ed. 1277. The relevant regulations read: "Sale means an agreement whereby the seller transfers the property (that is, the title or substantial incidents of ownership) in goods to the buyer for a consideration called the price, which may consist of money, services, or other goods." They continue: "When tax attaches. In the case of a sale (other than an installment or conditional sale) the tax attaches at the instant that the sale is made. The time when a sale is made is determined by several rules of law, among the more important of which are: (1) when there is a contract to sell unascertained articles, no property in the article is transferred to the buyer until the articles are ascertained; (2) when there is a contract to sell specific or ascertained articles, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred; and (3) for the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties, usages of the trade and the circumstances of the case." These rules were taken from the Uniform Sales Act; the decisions interpreting that Act, therefore, furnish a guide to the answer to our question.
§ 18 of the Uniform Sales Act, which in turn was taken from § 17 of the English Sales of Goods Act (1893).
Under the Sales Act and mercantile usage, a presumption arises that when goods are contracted for F.O.B., the property passes to the buyer at the time they are delivered on board the carrier. And what we consider the better authority indicates that the fact that the seller takes the bill of lading to his own order does not indicate a contrary intention, since "the seller's retention of ownership is merely for the purpose of security, and the beneficial interest as well as the risk of loss is on the buyer." But the rule that the property passes at the time goods are delivered free on board is merely one of presumption and, as Williston points out, "it is not uncommon to impose a duty on the seller to deliver goods at their ultimate destination for a price F.O.B. the point of shipment, that is, the buyer as part of the price bears all the expense on the goods after the place of shipment or other F.O.B. points, but otherwise the contract remains one for delivery of the goods at the further point."
We use "presumption" here in the sense of evidentiary material and not "as a rule of law laid down by the judge, and attaching to one evidentiary fact certain procedural consequences as to the production of other evidence by the opponent." 5 Wigmore, Evidence, 2d Ed. 1923, § 4291.
1 Williston, Sales, 2d Ed., 1924, § 280b.
Ibid. Cf. Uniform Sales Act, § 20(a)(2).
1 Williston, Sales, 2d Ed. 1924, § 280b.
It is evident from a reading of the contract and a look at the actions of the parties that either of the two possible interpretations as to when the "sale" took place can be supported. Where there is evidence to support what amounts to a finding of fact, we cannot reverse the lower court. But the District Judge's opinion contains statements which indicate that he applied an incorrect rule of law. He stated: "If this action were as between Amtorg and Northam, the contention raised by Amtorg that title passed at Leningrad or Hamburg might be well substantiated. The cases cited by Amtorg might be applicable to that holding. Based upon the facts before me, it seems it would be a strained interpretation to make that finding as between Amtorg and the Government. The facts before me are indicative that for tax purposes title in the United States was held by Amtorg. The presumption of title which Amtorg claims under the agreement is not conclusive and may well be vitiated by the actions of the parties thereto." We are in complete agreement with the District Judge that the "presumption" is not conclusive, as we stated above. But we cannot agree that the test is any different in the instant case from what it would be if the issue here were between Northam and Amtorg. For that reason we must remand for an ascertainment by the trial court, on an application of the correct legal principles, whether it was the intention of the parties that the title should pass in Europe.
The trial judge did so find; but he asserted that the "intention was never carried out in this respect." This too is difficult to understand, for if the intention of the parties was to have the title pass at the time of the delivery to the carrier in Europe, title did pass when the goods were so delivered, for both the Sales Act and the regulations make the intention of the parties the determining factor.
2. The second question raised on appeal must be determined only if the District Court finds that the "sale" from Amtorg to Northam occurred in the United States. To avoid the necessity of further appeals, however, we will decide that issue here.
We think that Amtorg failed to carry the burden of proof necessary to entitle it to a recovery of the $25,000 awarded it by the District Court. Assuming, arguendo, that if Amtorg had shown that Northam had paid the excise tax on the sale of some of the matches in question, Amtorg would be entitled to a deduction, there was no evidence to support Amtorg's contention that the excise tax had been paid by Northam. The letters and statement from Northam to Amtorg do not come within the category of business records and are therefore inadmissible hearsay. No other material proof was adduced to support Amtorg's argument.
Reversed and remanded for further proceedings in accordance with this opinion.