Bates v. Director Of Revenue

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In 1970, Jack and Virginia purchased a property from the Carney family, then Rogers executed a $660,062.69 promissory note to the Carneys and first deed of the trust to secure payment of the motel[1].

The property after that was passed in the hands of several people. In 1973, the property was transferred to Manor Inn Incorporation, a corporation which was owned by J. Douglas Cassity. When he took the ownership of the motel, he has assumed that the promissory note held with the Carney’s family. It was during the Cassity period the sale tax problem emerged. In 1979, Cassity executed *275 and delivered to Great Southern Savings and Loan Association his promissory note for $790,000 secured by a deed of trust on the motel property junior to that of the Carneys[2].

Cassity defaulted on the Carney note and a successor-trustee under the first deed of trust sold the property at a foreclosure sale to Great Southern for $902,000. Great Southern paid the full amount of the purchase price and received the title by trustee’s deed[3].

The Trustee paid approximately $301,000 of the purchase price to Great Southern on its junior note and held the remaining $601,000 for the satisfaction of the Carney note and payment of an accompanying claim for attorney’s fees[4].

After that Cassity contested the legality of the sale and presented objections to the Carney’s trustee. The Great Southern also challenged the number of the attorney’s fee which was allocated in the sale price.

The Trustee filed his petition for declaratory judgment and deposited the contested funds in the registry of the Phelps County Circuit Court[5]. The petition, naming the Carneys, Manor Inn Inc. (Cassity) and Great Southern as defendants, requested that the court declare the foreclosure sale valid and approve the proposed disbursement of funds in the Trustee’s hands.[6]

While this was pending, the appellant bought the motel complex and thereof the suit was settled. After the settlement, Bates transferred $3,000 in gems to Cassity and received from Cassity a quitclaim deed conveying his interest in the reality and a bill of sale for the personal property constituting the physical assets of the Manor Inn business[7].

Bates also executed a promissory note for $975,000, secured by his deed of trust on the property, to Great Southern and received from Great Southern a quit-claim deed conveying its interests in the reality and a bill of sale for the personal property of the Manor Inn[8].

The transactions were in the name of Cassity to be the seller of the property. Later on, the Director of Revenue assessed Bates $17,289.03 as a sales tax that has accrued during the Cassity’s operation.

Bates sought review before the Administrative Hearing Commission and from an adverse ruling there, appeals to this Court. The Commission did not determine as to whether Bates purchased the Manor Inn property from Cassity or Great Southern but found him liable as a successor regardless *276 of which might be his predecessor in title[9].

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Here is the present appeal.


Whether the appellant comes under the definition of the successor or not?

Contentions And Arguments

It was contended by the appellant that he purchased the property from Great Southern, not Cassity, and accordingly was not a “successor” within the meaning of the statute, this because Great Southern purchased from the foreclosing Carney Trustee and that foreclosure severed the line of succession, protecting Great Southern and Bates from derivative liability as a matter of law[10].

It was contended by the Court- One who acquires property without purchasing cannot withhold purchase money and necessarily cannot be held liable as a “successor” within the meaning of the statute. To be a successor one must be a purchaser of the business property in question[11].

Now, turning to the present case that appellant was fully aware of theCassity’s relationship to the property in question and not only that but the record shows that the title of the land was showing the Cassity interest in it until the appellant took the possession. Appellant also paid Cassity 3000 gems to quit the claim. In addition to that, he also made a contract of agreement between him and the Great Southern states that the appellant “contracted with” Cassity for the sale of the Manor Inn business property. Thus, it can be said the record permits our conclusion that appellant purchased from and is a successor to Cassity, and provides sufficient competent evidence to support the Commission’s determination that appellant was a successor within the meaning of the statute[12].

Decision of the Court

It was held that all the evidence showed that the appellant is a successor with the meaning of the act and he is liable to pay the sales tax.


According to my opinion, the decision was correct, as the appellant knew about all the interest and if people will play these tactics so that they won’t pay sales tax then what will the government get. It’s hard to distinguish between who’s the successor and who is the derivative successor. It depends on the facts and circumstances of each case.

Also read R.R Kothandaraman v Commissioner of Income Tax



[3]Supra note 1.


[5] Ibid.

[6]Supra note 4.

[7]Supra note 1.


[9]Supra note 4.

[10]Supra Note 2.


[12] Ibid.