GOLDBERG, Circuit Judge:
A little-known weapon in the government's tax collection arsenal has turned a bank employee's mistake into a banker's nightmare. Originally financial go-between for a harried general contractor and a financially-troubled subcontractor, the Second National Bank of North Miami now finds itself caught between the relentless federal tax collector and a resourceful taxpayer. The hapless bank appeals an adverse judgment which has left it holding the bag of someone else's tax liability. We affirm.
The skeletal framework of this controversy is undisputed although several important factual details remain bones of contention. In the fall of 1970 Medallion Electric Company, Inc. [Medallion], an electrical subcontractor working for The Hannon Company [Hannon] on the construction of the Midway Mall Shopping Center in Dade County, Florida, began having difficulties meeting its payroll and setting aside sufficient amounts to pay withholding taxes due the United States. After a series of payroll checks drawn on defendant-appellant Second National Bank [bank] were returned unpaid due to insufficient funds, the business agent of Medallion's employees' union, acting pursuant to the contract with Medallion, refused to accept further payroll payments except in the form of cash, cashiers' checks, or the equivalent. To meet the union's demand and to prevent further interruptions in the progress of the construction, Medallion and Hannon arranged a net payroll financing operation with appellant bank as financial intermediary.
The bank issued the first set of 190 money orders on or about October 5, 1970. Because an influential bank customer had guaranteed Hannon's check, appellant bank issued the money orders on uncollected funds, that is, before Hannon's check had cleared City National Bank. Medallion received the money orders, filled in the names of the employees, and met the payroll. Subsequently Hannon's check cleared and was paid by City National Bank.
Sometime before appellant was to issue the second series of money orders, employees of the Internal Revenue Service met with Medallion representatives, including Leonard Gutkin, president of Medallion, and Alphonse Schwitalla, Medallion's attorney, regarding Medallion's withholding taxes for the third quarter of 1970.
On October 14 Hannon's second check, in the amount of $83,000, was delivered to appellant and credited to Medallion's payroll account. Since no one had guaranteed payment of this check, appellant's president, Alfred Slobusky, did not, as he had done the first week, approve the issuance of the money orders on uncollected funds. Unfortunately, after telephoning City National Bank to verify that Hannon had sufficient funds on deposit to cover the check, appellant's assistant cashier followed the previous week's procedure and issued the 190 money orders in the total face amount of $92,355.86.
On learning from Medallion's employees that they had not been paid, Hannon stopped payment on the $83,000 check, which had not yet cleared City National Bank. In its turn appellant stopped payment on the money orders, and immediately informed the Collection Division of the IRS of its reasons for the action. On October 27 the money orders were presented for payment and returned unpaid. In the meantime, Hannon paid the regular net wages to Medallion's employees, as well as an additional $10,000 in penalty payments due under Medallion's union contract for late payment of wages. Thereafter Hannon sued appellant in state court to recover the penalty payments, and won a $10,000 judgment, which appellant has paid.
The United States filed suit in the United States District Court to reduce its claim on the money orders to judgment and to foreclose a statutory lien on appellant's assets, asserted pursuant to
II. APPLICABILITY OF SECTION 6311
Appellant's first line of attack focuses on the statutory underpinnings of the judgment below. Section 6311 in its entirety provides:
Appellant asseverates that the statutory lien provision applies only when (a) money orders or other negotiable instruments have been drawn explicitly in payment for taxes and (b) the bank has received sufficient funds to cover the instruments and (c) the bank has either failed or closed due to a bank holiday of the sort common during the 1930's. Since none of these conditions existed in the case at bar, bank argues, the district court should have refused to impose a lien on the bank's assets in favor of the United States. We disagree.
Our review of appellant's applicability argument must begin with the principle that our duty "is to give effect to the intent of Congress, and in doing so our first reference is ... to the literal meaning of the words employed." Flora v. United States, 1958, 357 U.S. 63, 65, 78 S.Ct. 1079, 1081, 2 L.Ed.2d 1165, 1167. "Often these words are sufficient in and of themselves to determine the purpose of the legislation. In such cases we have followed their plain meaning." Perry v. Commerce Loan Co., 1966, 383 U.S. 392, 400, 86 S.Ct. 852, 857, 15 L.Ed.2d 827, 833, quoting United States v. American Trucking Associations, 1940, 310 U.S. 534, 543, 60 S.Ct. 1059, 84 L.Ed. 1345, 1350; Ray Baille Trash Hauling, Inc. v. Kleppe, 5 Cir.1973, 477 F.2d 696, 707. And we must be constantly mindful that
Ex parte Collett, 1949, 337 U.S. 55, 61, 69 S.Ct. 944, 947, 93 L.Ed. 1207, 1211; General Electric Co. v. Southern Construction Co., 5 Cir.1967, 383 F.2d 135, 138 & n. 2, cert. denied, 1968, 390 U.S. 955, 88 S.Ct. 1049, 19 L.Ed.2d 1148.
We are convinced that on careful, reasonable examination, the text of section 6311 yields a plain, unambiguous meaning. The statute allows taxpayers to use certain types of negotiable instruments in paying their internal revenue taxes. In addition it supplies two means of protecting the interests of the United States in the event the particular negotiable instrument is not duly paid: the taxpayer remains liable for the taxes; and the United States may also have a lien on the assets of the bank or trust company that issued or on which the instrument was drawn.
Ordinarily, the determination that a statute has, on its face, a plain, unambiguous meaning obviates the necessity for extended statutory interpretation. Appellant insists, however, that we must accept its restrictive reading of the statute if we are to avoid colliding with clearly established legislative purpose. Pointing to the history, case law, and regulations pertaining to § 6311, appellant argues that "the purpose of this statute is to enable the United States to maintain a preferential position as against general creditors under circumstances ... where checks, certified by the defendant bank and forwarded to the collector of Internal Revenue, were not paid by reason of a bank holiday proclaimed by the President of the United States." Reply Brief of Appellant at 16.
The courts of this country have long disfavored the rigid rule of our English brethren that "If Parliament does not mean what it says it must say so." C. I. R. v. Mercantile National Bank, 5 Cir.1960, 276 F.2d 58; see C. Nutting, S. Elliott, & R. Dickerson, Legislation — Cases and Materials 413-14 (1969). For example, in Church of the Holy Trinity v. United States, 1892, 143 U.S. 457, 459, 12 S.Ct. 511, 512, 36 L.Ed. 226, 228, the Supreme Court said:
With the aid of the Historical Note following 26 U.S.C. § 6311, the historical lineage of the statutory lien provision is not difficult to trace.
The 1911 act as amended became § 3656 of the 1939 Internal Revenue Code, Act of Feb. 10, 1939, ch. 2, 53 Stat. 1, 447.
Section 3656 of the 1939 Code as amended became § 6311 of the 1954 Internal Revenue Code, 26 U.S.C. § 6311. Although the 1954 Code rearranged the provisions of § 3656, no significant substantive changes — and none at all relating to the proper interpretation of the lien provision — were made.
As we read this legislative history, the statutory lien provision was designed as a counter-weight to the allowance of new methods of paying internal revenue taxes; at the same time that taxpayers were offered increased convenience, the government was to receive increased protection of its interest in receiving the taxes owing not only by retaining the right to pursue the taxpayer, but also by gaining the right to hold the respective bank or trust company for negotiable instruments not duly paid. Congress may have foreseen that the principal need for the lien protection would arise in the case of bank failures or holidays, but to assert that to be the only situation in which they desired to protect the government's interests would require the most extravagant legislative psychoanalysis. The legislature may not have predicted that a bank would someday issue negotiable money orders on funds it did not yet have in hand, but that is no justification for niggardly statutory construction. Appellant's proposed interpretation of the statute would not, in our view, suppress the mischief and advance the remedy encompassed by this law, and would on the contrary constitute a "subtle invention and evasion for continuance of the mischief."
Although we do not deny that in ascertaining the meaning and purpose of a statute "consideration must be given to ... the operation and administration of the statute prior to litigation,"
Certainly the only case cited by appellant, American Tobacco Co. v. South Carolina National Bank, E.D.S.C.1936, 15 F.Supp. 215, offers no solace. To the extent that the decision retains vitality, a question about which we intimate no view, it stands for no more than that when because of a bank holiday a bank has refused to honor one of the particular negotiable instruments and the taxpayer has been forced to pay the taxes in another manner, the taxpayer may, with the government's cooperation, stand in the government's shoes regarding the statutory lien.
Moreover, even recognizing that regulations under the Internal Revenue Code are entitled to considerable weight in construing the Code, cf. Weeks v. Southern Bell Telephone & Telegraph Co., 5 Cir.1969, 408 F.2d 228, 235, we find nothing ineluctable, or even persuasive, in the fragment of the regulations cited by appellant that "District Directors may accept checks drawn ... in payment for Internal Revenue taxes ...." Brief for Appellant at 28, citing 26 C.F.R. § 301.6311-1(a).
Finally, the bank suggests that application of § 6311 to the facts of this case would constitute a taking of its property without due process in violation of the Fifth Amendment to the United States Constitution.
III. HOLDER IN DUE COURSE
Bank next argues that even granting a broad interpretation of § 6311 it had a legal right to refuse payment on these particular money orders. Since it is not, therefore, liable to the United States on the basis of the unpaid money orders, the bank continues, the United States should not be able to claim the existence of the statutory lien. This argument requires us to turn to Florida law and the provisions of the Uniform Commercial Code, which became effective in Florida on January 1, 1967, prior to the transactions here at issue.
The keystone of the bank's argument is that the United States possessed the money orders as a simple holder, rather than as a holder in due course. Section 3-305 of the UCC provides that a holder in due course takes an instrument free from:
Fla.Stat.Ann. § 673.3-305. A simple holder, by contrast, takes an instrument subject to all defenses of any party which would be available in an action on a simple contract, as well as the defenses of want or failure of consideration, non-performance of any condition precedent, non-delivery, or delivery for a special purpose. Id. § 673.3-306. Since the principal defense to liability raised by the bank — failure of consideration resulting from Hannon's action in stopping payment on its check for the money orders —
A substantial hurdle blocks the bank's path to success in this Court. The district court explicitly found that the United States is a holder in due course of the 190 money orders. The government insists that this holding is a finding of ultimate fact, resting on certain implicit subsidiary findings of fact, and that our review is limited by the clearly erroneous rule, Fed.R.Civ.Pro. 52(a). See Humphrey v. Southwestern Portland Cement Co., 5 Cir.1974, 488 F.2d 691, 694. The bank, on the other hand, characterizes the court's conclusion as a mixed question of fact and law and urges us to re-examine it free from the insulation of Rule 52(a). See Galena Oaks Corp. v. Scofield, 5 Cir.1954, 218 F.2d 217; 9 C. Wright & A. Miller, Federal Practice and Procedure § 2589.
Section 3-302(1) of the UCC supplies the definition of a holder in due course: a holder in due course is a holder who takes an instrument for value, in good faith, and without notice that it is overdue or has been dishonored or of any defense against it on the part of any person. Fla.Stat.Ann. § 673.3-302(1). While the Code also provides statutory meaning for the terms "taking for value," id. § 673.3-303, and "notice to purchaser," id. § 673.3-304, it is apparent that the application of these subsidiary definitions in order to determine whether a party is a holder in due
The bank argues that the evidence in the case will not support the trial court's implicit finding that the United States received the money orders in good faith, as required of a holder in due course.
On the basis of our careful review of the record as a whole, we find more than ample evidence to support the trial court's findings.
IV. EQUITABLE CONSIDERATIONS
As an alternative ground for relief, appellant notes the essentially equitable nature of an action to foreclose a lien and insists that dirt on the hands of the IRS agents should have made the United States an unwelcome supplicant in the equity courtroom. Conceding the absence of actionable fraud, bank nevertheless urges that "at the very least, the conduct of [the United States'] agents
Certainly when seeking an equitable remedy the United States is no more immune to the general principles of equity than any other litigant. Although these principles "will not be applied to frustrate the purpose of its laws or to thwart public policy," see Pan American Petroleum & Transport Co. v. United States, 1927, 273 U.S. 456, 506, 47 S.Ct. 416, 424, 71 L.Ed. 734, 747; Deseret Apartments v. United States, 10 Cir.1957, 250 F.2d 457, 458, in general "there is no authority by which equity can come to the aid of an illegal and fraudulent scheme, regardless of the beneficence of the ultimate purpose." In re Mutual Leasing Corp., 5 Cir.1971, 449 F.2d 811, 815. On the other hand, "unless the Government did something which in good conscience it should not have done, or failed to do something fair dealing required it to do, it comes into court with clean hands and is entitled to the equitable relief it obtained." Deseret Apartments, supra, 250 F.2d at 458.
The conduct of the IRS agents obviously disturbed the trial judge: "You keep talking about a moral issue, and to be perfectly frank with you, I don't find it a very pleasing thing that the government did here, my government, frankly ...." App. at 209. He nevertheless correctly perceived the real issue to be whether the government, through the IRS agents, had a lawful right to do what it did; that is, receive the money orders in payment for taxes and request that the bank honor them. Having determined that the United States acted with sufficient good faith and in ignorance of the bank's defenses to the money orders to attain the status of holder in due course, the court not surprisingly concluded that the United States was entitled to have its statutory lien enforced. On the basis of the evidence in this case we are unwilling to quarrel with the trial judge's belief that conduct insufficiently malignant to deprive a party of holder in due course status is likewise an inadequate reason for refusing to grant an equitable remedy. Whether the contamination of one seeking equity justifies the chancellor in turning a deaf ear is, in the first instance, for the chancellor to decide; we see nothing in the conduct of the IRS agents that should have compelled him to call the men pariahs.
V. COUNTER CLAIM
Finally, appellant protests the district court's rejection of its Federal Tort Claims Act counterclaim.
This case has required us to explore one of the lesser known chambers in a labyrinthine Internal Revenue Code honeycombed with obscure passageways. But if unfamiliar and infrequently visited, section 6311(b)(2) may be understood without the specialized tools of statutory speleology. Framed in relatively straightforward English, its meaning is readily apparent; and though the unwary may find it a trap, passage around the danger is marked by accepted commercial practices and established principles of the law of negotiable instruments. Our federal tax code may appear to operate with a rigidity that makes its collectors bereft of human pity, conscience, or compassion; its operation is also an illustration that ours is a government of laws, not men.
United States v. Public Utilities Commission, 1953, 345 U.S. 295, 320, 73 S.Ct. 706, 720, 97 L.Ed. 1020, 1040 (concurring opinion).
H.R.Rep.No.2018, 78th Cong., 2d Sess. 1 (1944).
In addition, as both the court below and the United States have suggested, the Hatahley Court made the statement cited by appellant in the course of holding inapplicable a statutory provision excepting from § 1346(b) "[a]ny claim based upon an act or omission of an employee of the Government, exercising due care, in the execution of a statute or regulation ...." 28 U.S.C. § 2680(a). For reasons not entirely clear to us, the government insists that the applicability of this exception is not an issue in the case at bar. Since our disposition of appellant's counterclaim argument need not turn on the issue, we omit further discussion of the point.