The opinion of the court was delivered by: DUSEN
For the purposes of defendants' motion for summary judgment, it must be assumed that a legal life tenant expended sums for permanent improvements
on the real property (a farm) on which he had a life estate, in fraud of creditors, during the period 1947 to 1955 (see Exhibit A to amendment to complaint, being Document No. 13). This suit to recover income taxes becoming due during the life tenant's lifetime, by impressing a lien on the above land now held by the remainderman to the extent that the value of the land with these improvements exceeded the value of the land without such improvements at the time of the life tenant's death on July 3, 1955, was instituted on July 2, 1956.
I. Contention that 12 P.S. § 83
is a bar to recovery for permanent improvements paid for
prior to July 2, 1951.
Plaintiff contends that the use of money by the life tenant to pay for the improvements is equivalent to a void transfer of land by him and, hence, no 'implied or resulting' trust is being enforced in this action.
However, the cases
involving transfer of land by a debtor in fraud of creditors are not in point since the life tenant did not convey his life estate
but converted his assets fraudulently into an increased value of the land as of the time of each permanent improvement. Although the question is not free from doubt, the reasoning of Silliman v. Haas, 1892, 151 Pa. 52, 57, 62-63, 65-66, 25 A. 72,
relied on by defendants, appears to require the holding that a trust of the type contemplated by 12 P.S. 83 became enforcible against the land, in which the deceased debtor had a life estate, when these improvements were made.
To the extent that the alleged permanent improvements increased the value of the remainder interest,
the defrauded creditors have no remedy by reaching the life estate alone.
The cases, cited by plaintiff, of Rayman v. Morris, 1949, 361 Pa. 583, 65 A.2d 397, and Citizens Deposit & Trust Co. of Sharpsburg v. Citizens D. & T. Co., 1939, 136 Pa.Super. 413, 7 A.2d 519, do not support the plaintiff's claim that the statutory period was tolled, since the plaintiff, who is asserting the implied or resulting trust, was not in possession during or after the life tenancy. This record makes clear that the remainderman had no part whatever in any alleged fraud of the life tenant. See memorandum opinion of July 28, 1959, 175 F.Supp. 654, at pages 655, 656, and cf. Proctor v. Sagamore Big Game Club, 3 Cir., 1959, 265 F.2d 196, 202.
Also, plaintiff's contention that the statutes of limitations contained in 26 U.S.C.A. § 276(c) (1939 I.R.C.) and 26 U.S.C.A. § 6502 (1954 I.R.C.) make 12 P.S. § 83 inapplicable is rejected. Plaintiff has no lien on the property in question, since assessment and demand were made after the death of the taxpayer-life tenant. Because any lien in favor of plaintiff attached after the life tenant's death and, hence, at a time when he had no interest in the real estate, any right of the Government in the property must be determined under state law. See Commissioner of Internal Revenue v. Stern, 1958, 357 U.S. 39, 45, 78 S. Ct. 1047, 2 L. Ed. 2d 1126; United States v. Bess, 1958, 357 U.S. 51, 55, 78 S. Ct. 1054, 2 L. Ed. 2d 1135; cf. Central Surety & Insurance Corp. v. Martin Infante Co., Inc., 3 Cir., 272 F.2d 231. In Commissioner of Internal Revenue v. Stern, supra, 357 U.S. at page 45, 78 S. Ct. at page 1051, the Supreme Court of the United States has held that, where proceedings are instituted for the collection of federal income taxes becoming due during the life period of a deceased taxpayer after his death and against sources other than his estate, 'the existence and extent of liability should be determined by state law.' The court used this language at page 47 of 357 U.S., at page 1052 of 78 S. Ct.:
'The Government's substantive rights in this case are precisely those which other creditors would have under Kentucky law. The respondent is not liable to the Government because Kentucky law imposes no liability against respondent in favor of Dr. Stern's other creditors.'
The Pennsylvania appellate court cases construing 12 P.S. § 83 make clear that it creates a substantive rule of law governing title to land and does not merely take away an otherwise existing remedy. See Way v. Hooton, 1893, 156 Pa. 8, 26 A. 784, and First Pool Gas Coal Co. v. Wheeler Run Coal Co., 1930, 301 Pa. 485, 152 A. 685; cf. Proctor v. Sagamore Big Game Club, supra, 265 F.2d at page 202. In Way v. Hooton, supra, the court used the following language at pages 20-21 of 156 Pa., at page 786 of 26 A.:
'In the case of Cochran v. Young, 104 Pa. 333, this subject was carefully and fully considered, and the quality of the act of 1856, as affecting the title to land and not merely the remedy, was authoritatively announced. Mr. Justice Clark, in stating several conclusions arising under the seventh section, but relating to the whole act, said: 'It is not to be regarded simply as a statute of limitations, it is a provision for the greater certainty of title. Statutes of limitations affect the remedy only, but this section of the act of 1856, as we have said in Warfield v. Fox, 53 Pa. 382; Hegarty's Appeal, 75 Pa. 503, 517, and McCort's Appeal, 98 Pa. 33, lays down a rule of evidence which, after * * * pursued, makes that conclusive which before was prima facie only. It therefore affects the title to the land, and not merely the remedy for its recovery. * * * These are the deliberate conclusions of this court after a careful study of this statute, and we are unwilling to modify or change them. Individual cases of special hardship may, and doubtless will, occur, which, at first blush may appear to bring in question the wisdom of these rulings, but we believe this construction to be in accord with the purpose and design of the statute.' Although this case arose under the seventh section of the act, which protects titles to real estate under wills after five years from the probate, yet precisely the same considerations are applicable to the sixth section, which protects titles to real estate from secret trusts after five years from their inception.'
Under similar circumstances, the Federal Courts have recognized that state statutes placing limitations upon the existence of a right in order to secure repose of land titles are limitations on the Federal government. Cf. Fink v. O'Neil, 1882, 106 U.S. 272, 1 S. Ct. 325, 27 L. Ed. 196; Custer v. McCutcheon, 1931, 283 U.S. 514, 51 S. Ct. 530, 75 L. Ed. 1239; United States v. Harpootlian, 2 Cir., 1928, 24 F.2d 646; United States v. Ryan, D.C.D.Minn.1954, 124 F.Supp. 1, 10.
As pointed out in the Custer case at page 519 of 283 U.S., at page 532 of 51 S. Ct., 'The plaintiff is not precluded from bringing an action' against the estate of the deceased taxpayer, but merely from reaching the land of a person other than the taxpayer because of a state policy concerning land titles.
For the foregoing reasons, paragraph 1 of the motion for summary judgment will be granted and an appropriate order may be submitted by defendants.
II. Contentions that jeopardy assessments and fraud penalties should not be considered liabilities of the deceased life tenant in years prior to their assessment for purposes of determining his alleged insolvency under § 4 of the Uniform Fraudulent Conveyance Act (39 P.S. § 354).
In view of the conclusion reached under I above, it may not be necessary to rule on these contentions, since defendants may concede the life tenant's insolvency as of July 2, 1951. The parties are trying to agree on a stipulation covering, among other matters, the assets and liabilities of the life tenant at the time of each improvement. After this stipulation has been filed or the record has been otherwise supplemented on this subject, ...