
    UNITED STATES v. MARYLAND CASUALTY CO.
    No. 715.
    District Court, S. D. Florida.
    May 4, 1934.
    Tbe United States District Attorney, for tbe United States.
    Miller, McKay, Dixon & DeJarnette, of Miami, Fla., for defendant.
   BITTER, District Judge.

Tbis action is on a bond given by Robert C. Lindsey, witb Maryland Casualty Company as surety, to tbe United States of America in tbe sum of $4,000, conditioned upon tbe payment by tbe said Lindsey of sueb deficiency in tax found to be due by tbe Commissioner, plus penalties, etc., in consideration of wbieb an extension of time for payment was given; tbe bond reciting, “Whereas, there is due from tbe above-bounden principal certain additional income or profits taxes resulting from a deficiency in tax (not due to negligence or to fraud with intent to evade tax),” and, “Whereas, to exact payment of tbe deficiency in tax at tbis time will result in undue hardship to tbe above-bounden principal.”

The principal has not paid tbe amount found due by the Commissioner, nor bis surety. Tbe plea filed by tbe defendant is that Robert C. Lindsey, the principal, was adjudged a bankrupt in this court and that tbe collector of internal revenue filed a claim in bankruptcy for tbe deficiency asserted against Lindsey and tbe trustee in bankruptcy filed exceptions to tbe allowance of tbe claim, wbieb exceptions were sustained by tbe referee in bankruptcy and tbe claim was disallowed, which facts it is asserted constitute complete defense to tbis cause of action.

Tbe status of a bond as here presented is fixed by tbe decision of tbe Supreme Court of the United States, in United States v. John Barth Company, 279 U. S. 370, 49 S. Ct. 366, 367, 73 L. Ed. 743, as follows: “Tbe plain purpose of paragraph 14(a) was to effect a substitution for tbe obligation arising under tbe return and assessment to pay tbe tax, of tbe contract entered into in tbe bond to pay any part of tbe tax found to be due upon tbe subsequent determination of tbe Commissioner. * * * Tbe making of tbe bond gives tbe United States a cause of action separate and distinct from an action to collect taxes wbieb it already bad.”

In Bryant-Link Company v. Hopkins, 47 F.(2d) 1068, the Circuit Court of Appeals of tbe Fifth Circuit cites tbe above case as the authority for its decision therein, setting forth tbe considerations for tbe bond wbieb make it a separate obligation upon wbieb suit may be instituted. Gulf States Steel Co. v. United States (C. C. A.) 56 F.(2d) 43.

In Bowers, Collector, v. American Surety Co. (C. C. A.) 30 F.(2d) 244, 245, tbe court says, in reference to an attempted action in bankruptcy by tbe surety upon a similar bond to secure an adjudication of tbe tax, as follows: “Moreover, tbe issues decided by tbe bankruptcy court were irrelevant in any event; they concerned, and could concern, only tbe question whether tbe tax bad been properly assessed, not whether it bad been assessed at all. Since tbe condition of the bond was tbe payment of tbe assessment, it made no difference, even if tbe order of the bankruptcy court bad created a good estoppel against tbe plaintiff. It seems, indeed, a harsh rule that tbe government should collect a tax which its courts have already decided not to be due, yet this is exactly tbe consequence of section 3224 of tbe Revised Statutes, U. S. Code, title 26, _§ 154 (26 USCA § 154). * * * The unimpeded collection of a nation’s taxes is a condition of its life, and it must serve as a redress to such citizens as are wronged that they have recourse to its courts after payment.”

All that occurred in tbe bankruptcy court was tbe refusal of allowance of tbe claim of the government. Even if it amounted to a termination as far as tbe referee’s order was concerned, it could not affect tbe right of action upon tbis bond. Tbe bond being a separate and independent cause of action admits that there is money due tbe government and seeks to defer payment in tbe hope of readjustment, but in any event promises to pay what tbe Commissioner finds due. Tbe determination as between Lindsey and tbe government by tbe referee does not release tbe surety, which agreed to pay the amount unconditionally.

If, as the foregoing authorities hold, the five-year statute of limitations (Revenue Act 1921, § 250(d), 42 Stat. 265) does not apply to acts where a bond is given, as here presented, and does not act as an extinguishment of the assessment by the same reasoning, the action of the bankruptcy court on this claim cannot act as an extinguishment of the right of action on the bond. Collateral matter cannot be set up in the action on the bond. The bond itself is the thing here. It is the substance of the action and upon it solely can the case proceed.

The Surety Company might pay the tax and then seek a refund, which seems to be its only recourse. The result may be harsh as stated in the Bower Case supra.  