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U.S. District Court, Dist. Wyo., C85-399, Francis
Leland Pico, Cheyenne, Wyo. 82003, Teresa J. Rasmussen, Mark G.
Fraase, Department of Justice, Washington, DC 20530, for
plaintiffs. Jeffrey C. Gosman, 139 W. Second, Casper, Wyo. 82601
for Charles R. Anderson, Denise Anderson, Joe R. Wilmetti, for
Meester Inc., William F. Swanton, P.O. Box 3191, Casper, Wyo.
82602, for Alfred Meester and Rose M. Meester. CORRECTED MEMORANDUM OPINION JOHNSON,
District Judge: This
is an action to reduce federal tax assessments against Robert F.
Aden and Carol J. Aden (Aden) to judgment, enforce outstanding
federal tax liens against the interests of the Adens in certain
real property located in Casper, Wyoming; and to foreclose the
federal tax liens on the interest of the Adens in that real
property. Jurisdiction vests by virtue of 28 U.S.C. §§1340 and
1345 and 26 U.S.C. §§7402
and 7403 . Summary
judgment may not be granted unless the pleadings, depositions,
answers to interrogatories and admissions on file, together with
affidavits, if any, show that there exists no genuine issue as to
any material fact and that the moving party is entitled to
judgment as a matter of law. Cayce v. Carter Oil Company,
618 F.2d 669, 672 (10th Cir. 1980). The fact that cross-motions
for summary judgment have been filed does not permit the entry of
summary judgment if disputes remain as to material facts. Buell
Cabinet Co., Inc. v. Sudduth, 608 F.2d 431 (10th Cir. 1979).
However, cross-motions for summary judgment will allow the Court
to infer that there is no evidence which needs to be considered
other than that which has been filed by the parties. Securities
and Exchange Commission v. American Commodity Exchange, Inc.,
546 F.2d 1361 (10th Cir. 1976). Following
a complete examination of the materials filed by both sides, we
find no dispute as to the material issues of fact. On During
the pendency of the contract for deed, and prior to default by the
Adens, the United States filed notices of federal tax liens on Initially,
we note that similar issues were raised in United States v.
Hernandez, Civil No. C85-384 (D. Wyo.). In Hernandez we
held that a purchaser's release of all equitable interests under a
contract for deed, in the state of Wyoming, is not a sale under §7425(b)
of Title 26, U.S.C. As a result, the tax lien filed by the
United States against the equitable interests of the purchaser
under the contract for deed was extinguished upon release and
abandonment of the purchaser's rights under the contract. The
United States' position in this case is that the declaration of a
forfeiture, as opposed to an abandonment, is a "nonjudicial
sale" of which the United States must receive notice under §7425(b)
in order to extinguish a federal tax lien. We do not agree. The
purchaser of property under a contract for deed is vested only
with an equitable interest in the property. Hollabaugh v.
Kolbet, 604 P.2d 1359 (Wyo. 1980). Absolute legal title
remains vested in the vendor, subject only to the right of the
purchaser under the contract. Barker v. Johnson, 591 P.2d
886 (Wyo. 1979). Upon default, unless equity dictates otherwise,
contractual provisions for forfeiture of the purchaser's equitable
interest may be enforced. Id. at 890; Younglove v.
Graham & Hill, 526 P.2d 689 (Wyo. 1974). Forfeiture
forecloses the rights of the purchaser under the contract, and
restores possession to the vendor without sale. Barker v.
Johnson, supra, at 890. Accordingly,
we follow those decisions which have held that a declaration for
forfeiture, under the law of their respective states, is not a
sale of property within the meaning of §7425(b)
; Title 26 U.S.C. Brookbank, Inc. v. Hubbard [83-2
USTC ¶9507 ], 712 F.2d 399 (9th Cir. 1983); Runkel v.
United States [76-1
USTC ¶9152 ], 527 F.2d 914 (9th Cir. 1975); Sigel v.
United States of America, Civil No. 4-85-440 (D.C. Minn. We
observe that the Andersons have filed a counterclaim against the
United States for attorney's fees under the Equal Access to
Justice Act, 26 U.S.C. §7430
. The United States has filed a motion to dismiss the
counterclaim on the ground that it fails to state a claim upon
which relief can be granted. The Court requests the parties to
fully brief the issues presented in the motion to dismiss and also
to provide authority on the question of whether attorney's fees
should be granted in this case, and if so, affidavits on the
amount of attorney's fees to be granted. Finally,
there remains one matter for the Court to decide. The United
States has filed motions for entry of default against Robert F.
Aden and Carol J. Aden Perkins (Adens). A review of the file
indicates that the Adens have been properly served with process
and that they have filed to plead or otherwise defend as provided
by the Federal Rules of Civil Procedure. In addition, the United
States has now presented evidence of a sum certain owing to
plaintiff in the amount of $36,114.26, plus accrued interest,
penalties and other additions to tax provided by law. Accordingly,
default judgment is entered by the Court in that amount against
Robert F. Aden and Carol J. Aden Perkins. Fed. Civ. Rules
Procedure, Rule 55, 28 U.S.C. Accordingly,
IT IS HEREBY ORDERED, ADJUDGED 1.
Plaintiffs' Motion for Summary Judgment as against defendants
Robert F. Aden and Carol J. Aden Perkins is granted. 2.
Judgment is entered in favor of plaintiff against defendant Robert
F. Aden and Carol J. Aden Perkins in the amount of $36,114.26,
plus accrued interest, penalties and other additions to tax as
provided by law. 3.
Plaintiffs' Motion for Summary Judgment as against Meester, Inc.,
Alfred Meester, Rose Meester, Charles R. Anderson, Jr., a/k/a Gus
Anderson, and Denise Anderson is denied. 4.
Defendants Meester, Inc., Alfred Meester, Rose Meester, Charles R.
Anderson, Jr., a/k/a Gus Anderson, and Denise Anderson's Motions
for Summary Judgment against plaintiff are granted. 5.
The United States and the Andersons shall file further briefs on
the issue of attorney's fees in accordance with this Memorandum
and Order within fifteen (15) days of the filing hereof. [81-2 USTC ¶9744] U. S. District Court, West. Dist. Wash., No. C80-593R, 520
FSupp 81, William
J. Carlson, P. O. Box 326, Redmond, Washington 98052, for
plaintiff. Donald M. Currie, Assistant United States Attorney,
Seattle, Washington 98104, for Internal Revenue Service. Memorandum Opinion and Order HARDY,
District Judge: The
plaintiffs, During
the time the contracts were in effect, a number of liens attached
to the Brellenthins' interest in the properties: 1. A claim of lien by Eastside Glass and Paint Company,
together with a lis pendens giving notice of an action by Eastside
to foreclose the lien. Eastside did not appear in this action and
its default has been entered. 2. Two federal tax liens. 3. A decree of dissolution of marriage dissolving the
marriage of Richard L. and Sheila A. Brellenthin and obligating
him to pay her $10,000. It does not appear that Sheila has been
served with process in this action. 4. Judgments in favor of the State of California, ex rel.
Winnie Rozelle, and the State of Arizona, ex rel. Rene Brellenthin,
for child support arrearages and/or reimbursement for public
assistance. 5. A judgment in favor of the State of Washington, Department
of Labor & Industries, against Richard Brellenthin and Jane
Doe Brellenthin. The State of Washington has not appeared in this
action and its default has been entered. The
Hedlunds have filed a motion for summary judgment against all
parties. The United States of America and the States of California
and Arizona have filed cross-motions for summary judgment. A
Notice of Stay has been filed in the court giving notice that
Richard L. Brellinthin and milo Brellenthin (apparently his
present wife) have filed a petition under Chapter XIII of the
Bankruptcy Act, as a result of which an automatic stay has come
into effect. The Notice also recites, "In addition, most actions and proceedings are stayed as
against co-debtors." The United States and the two states are not co-debtors of
Brellenthin. Accordingly, the Court will proceed to rule on the
motions for summary judgment. For
the reasons stated hereinafter, the motion of Hedlunds will be
granted and the motions of the United States and the States of
Arizona and California will be denied. The Claim of Federal Tax Lien Priority The
Federal Tax Lien Act of 1966, 26 U. S. C. §7425(b), provides that
when the United States has or claims a tax lien against property
". . . a sale . . . made pursuant to an instrument creating a
lien on such property, pursuant to a confession of judgment on the
obligation secured by such an instrument, or pursuant to a
nonjudicial sale under a statutory lien on such property . .
." shall be made subject to the tax lien if notice of the
sale is not given in writing by registered or certified mail or by
personal service to the Secretary of Treasury not less than
twenty-five days prior to the sale. In
Runkel v. United States [76-1 USTC ¶9152], 527 F. 2d 914
(9th Cir. 1975), the Ninth Circuit Court of Appeals held that a
declaration of forfeiture of a real estate sales contract was not
a sale of property within the meaning of subsection (b).
Thereafter, the Secretary of Treasury promulgated section The term "nonjudicial sale" includes, but is not
limited to, the divestment of the taxpayer's interest in property
which occurs by operation of law, by public or private sale, by
forfeiture, or by termination under provisions contained in a
contract for a deed or conditional sales contract . . .. The United States argues that this definition is a reasonable
interpretation of section 7425(b) of the Internal Revenue Code of
1954 (26 U. S. C.) and has the force and effect of law. I
disagree. The
power to prescribe rules and regulations is not the power to make
law. Manhattan General Equipment Co. v. Commissioner of
Internal Revenue [36-1 USTC ¶9105], 297 U. S. 129, 134
(1936), rehearing denied 297 U. S. 728. The Treasury Department
may not supply omissions or enlarge the scope of the Internal
Revenue Code. Busey v. Deshler Hotel Co. [42-2 USTC
¶9587], 130 F. 2d 187, 190 (6th Cir. 1942). See also Hart and
Miller Islands Area Environmental Group, Inc. v. Corps of
Engineers, 459 F. Supp. 279, 281 (D. Md. 1978) (agency
regulation cannot by definition expand the reach of statute),
rev'd on other grounds, 621 F. 2d 1281 (4th Cir. 1980), cert.
denied, -- U. S. --, 101 S. Ct. 544 (1980). The
Treasury Department has lifted "nonjudicial sale" out of
context, and has given it a definition which is inconsistent with
the provisions of the statute and which enlarges the scope of the
statute. Its definition has failed to give consideration to the
modifying phrase "under a statutory lien on such
property," which plainly restricts the meaning of a
"judicial sale" to a sale authorized by a statute
providing for a lien on property. Cf. Arkansas-Oklahoma Gas Co.
v. Commissioner of Internal Revenue [53-1 USTC ¶9170], 201 F.
2d 98, 102 (8th Cir. 1953) (the legislative definition of
"emergency facility" was so broad as to leave no room
for administrative limitation). The Claims of Arizona and California Arizona
and California recognize that it is the rule in Washington that a
vendee's interest under a contract for the sale of real property
is subject to attachment by a creditor of the vendee only where
his interest has not been forfeited or abandoned prior to a levy. Welling
v. Mount Si Bowl, Inc., 79 Wash. 2d 485, 487 P. 2d 620 (1971). To
avoid application of that rule in this case they urge that it
should be applied only to commercial judgment creditors and not
creditors whose judgments are for the collection of unpaid child
support. They argue that public policy dictates this distinction.
However, they cite no authority to support this argument. The
judgment liens of the states attached only to whatever title
Brellenthins had in the parcels of property. When that title was
extinguished, the liens were extinguished. If anything, a stronger
public policy argument could be made that a vendor of real
property does not enter into a contract of sale at the risk of
having his title encumbered because of the failure of his vendee
to provide child support. The
states also argue that they were entitled to notice of the
intention to declare a forfeiture because their judgment liens had
been recorded and because the Hedlunds must have had notice of the
existence of their liens. In
Washington the recording of an instrument is constructive notice
only to persons acquiring interest subsequent to the recording and
it is not notice to persons who had an interest at the time of
recording. Kendrick v. Davis, 75 Wash. 2d 456, 464, 452 P.
2d 222 (1969). The
claim of actual notice is supported only by the assertion that on
April 1, 1980, the Hedlunds ordered a title report from a title
insurance company which disclosed the interests claimed by the
states. This argument is patently ridiculous. The forfeiture was
effected on March 24, 1980. Nothing has been presented to show
that the Hedlunds had actual notice at that time. The
Hedlunds are entitled to summary judgment against the States of
Arizona and California. IT
IS ORDERED granting summary judgment in favor of the Hedlunds and
against the United States of America on its tax liens, the State
of California, ex rel. Rene Brellenthin, and the State of Arizona,
ex rel. Winnie Rozelle, on their judgment liens. 90-1 USTC ¶50,331] Metropolitan National Bank, James M. Oberlies and
Robert F. Ryan, Plaintiff-Appellees v. United States of America,
Defendant-Appellant (CA-5), U.S. Court of Appeals, 5th Circuit, 89-4710, Summary
Calendar, 5/30/90, 901 F2d 1297, 901 F2d 1297. Reversing and
remanding a District Court decision, 90-1
USTC ¶50,330 , 716 F.Supp. 946 Woodrow
W. Pringle Before
POLITZ, GARWOOD, and JOLLY, Circuit Judges. JOLLY,
Circuit Judge: The
United States appeals from the district court's judgment holding
that the United States' perfected tax lien, filed against three
parcels of real property owned by the taxpayer, Weaver & Sons,
Inc., was not entitled to priority over the interests claimed in
the property by the appellees, Metropolitan National Bank (the
"Bank"), James M. Oberlies, and Robert E. Ryan. [90-1
USTC ¶50,330 ] 716 F.Supp. 946. We hold that the appellees
were not entitled to priority under section
6323(a) of the Internal Revenue Code, and we therefore reverse
the judgment of the district court and remand the case for further
proceedings. I The
facts were stipulated by the parties. On On
February 23, March 2, March 9, March 16, and The
taxpayer defaulted in payment of its obligation to the Bank, and
subsequently filed a Chapter 7 bankruptcy petition. Although none
of the papers relating to the taxpayer's bankruptcy are contained
in the record before us, the appellees' brief states that the
taxpayer's bankruptcy petition was filed on On
The
bankruptcy court lifted the automatic stay, authorizing the Bank
to repossess and foreclose upon the subject property. Notices of
foreclosure were posted in the county courthouse, published in the
local newspaper, and sent to the II The
appellees brought this action against the United States under 28
U.S.C. §2410, seeking to quiet title to the property. The United
States counterclaimed, joining the taxpayer as an additional
defendant, seeking to foreclose its federal tax liens against the
subject property and to collect $195,621.65, the outstanding tax
liability of the taxpayer. On cross motions for summary judgment,
the district court granted summary judgment in favor of the
appellees. The district court held that the original deed of trust
was improperly acknowledged and that, even though the deed of
trust was recorded, because the defect in the acknowledgment was
apparent on the face of the deed, the recordation of the deed did
not provide constructive notice to subsequent creditors that the
property was encumbered. Nevertheless, the court held that, even
though the deed was improperly acknowledged and should not have
been recorded, the deed "provided actual notice to anyone who
cared to review the records of the Chancery Clerk." The
district court did not hold, however, that agents of the United
States had in fact reviewed the county records prior to filing the
notices of federal tax liens against the taxpayer, or that the
United States possessed any information sufficient to place it on
"inquiry notice" of the deed. Finally, the district
court concluded that the United States' tax lien was not entitled
to priority over the Bank's interest because, under state law, the
Bank held equitable title to the property by virtue of the
original defective deed of trust, and the United States had actual
notice of such equitable title. Thus, when the Bank foreclosed
upon the property in the non-judicial sale, the district court
held that the United States' junior tax lien was extinguished
under the provisions of Internal Revenue Code section
7425(b) . The United States appeals.
Under
26 U.S.C. §6321 ,
the amount of a delinquent taxpayer's liability constitutes a lien
in favor of the United States upon all of the taxpayer's property
and rights to property, whether real or personal. The lien imposed
by §6321 is
effective from the date of assessment of the tax, and continues
until the liability is satisfied or becomes unenforceable by
reason of lapse of time. 26 U.S.C. §6322
. The question whether and to what extent a taxpayer has
"property" or "rights to property" to which
the tax lien attaches is determined under the applicable state
law. United States v. Rodgers [83-1
USTC ¶9374 ], 461 U.S. 677,683, 103 S.Ct. 2132, 2137, 76
L.Ed.2d 236 (1983). It is undisputed in this case that the
taxpayer owned, or had rights to, the subject property to which
the federal tax liens attached. Once
it has been determined under state law that the taxpayer owns
property or rights to property, federal law controls for the
purpose of determining whether an attached tax lien has priority
over competing liens asserted against the taxpayer's property. Rodgers,
461 U.S. at 683, 103 S.Ct. at 2137 "When a third party also
claims a lien interest in the taxpayer's property, the basic
priority rule of 'first in time, first in right' controls, unless
Congress has created a different priority rule to govern the
particular situation." Texas Commerce Bank-Fort Worth, N.A.
v. United States [90-1
USTC ¶50,155 ], 896 F.2d 152 (5th Cir. 1990). Section
6323 of the Internal Revenue Code, as amended by the Federal
Tax Lien Act of 1966, governs the validity and priority of federal
tax liens imposed by §6321
against "certain persons." The appellees rely on the
special priority rules of subsection (a) of §6323
, which provides, in pertinent part, that a federal tax lien
shall not be valid against any "holder of a security
interest" until notice of the tax lien has been filed. Thus,
the respective priorities with respect to federal tax liens and
competing claims that are protected under §6323(a)
are dependent upon which claim is perfected "first in
time." Both parties agree that, if the Bank was a
"holder of a security interest" at the time the United
States filed its federal tax liens, the appellees' interests are
entitled to priority over the federal tax liens and that the tax
liens were thus extinguished in the foreclosure sale. The
definition of "security interest" is found in 26 U.S.C. §6323(h)(1)
: The
term "security interest" means any interest in property
acquired by contract for the purpose of securing payment or
performance of an obligation or indemnifying against loss or
liability. A security interest exists only when the lienholder satisfies
two requirements: (A)
if, at such time the property is in existence and the interest has
become protected under local law against a subsequent judgment
lien arising out of an unsecured obligation, and (B) to the extent
that, at such time, the holder has parted with money or money's
worth. Because the subject property is in existence and the Bank
parted with money in return for the deed of trust, the Bank's
interest in the subject property by virtue of the original deed of
trust is entitled to priority over the subsequently filed federal
tax lien under §6323(a)
if, as a result of filing the original deed of trust, the Bank
is "protected under local law against a subsequent judgment
lien arising out of an unsecured obligation." 26 U.S.C. §6323(h)(1)
. The United States argues that the district court erred in
holding that the Bank is a "holder of a security
interest" within the meaning of §6323(a)
because the Bank's interest was not protected under
Mississippi law against a subsequent judgment lien arising out of
an unsecured obligation, and thus, there was no security interest
in existence, within the meaning of §6323(h)(1)
,at the time of the filing of the federal tax liens. Because
the corrected deed of trust was not filed until after the federal
tax liens were filed, the issue before us is whether the Bank held
an interest under the original deed of trust that was protected
under Mississippi law against a subsequent judgment lien arising
out of an unsecured obligation. Under
§6323(h)(1) ,
a security interest exists only if "the interest is protected
under local law against a subsequent judgment lien arising out of
an unsecured obligation." The House Committee Report states
with reference to §6323(h)(1)
that: [A]
security interest becomes protected against a subsequent judgment
lien on the date on which all actions required under local law to
establish the priority of the security interest against such a
judgment lien have been taken, or, if later, the date on which all
such actions are deemed effective, under local law, to establish
such priority. H.R. Rep. No. 1884, 89th Cong., 2d Sess. 49 (1966). As
we explain below, our examination of the relevant Mississippi
cases and statutes convinces us that the Bank's interest under the
original deed of trust would not have been entitled to protection
against a subsequent judgment lien arising out of an unsecured
obligation unless such a judgment lien creditor had actual notice
or knowledge of the defectively acknowledged deed of trust. 1 (1) Under
Mississippi law, all deeds of trust are "void as to all
creditors and subsequent purchasers for a valuable consideration
without notice, unless they be acknowledged or proved and lodged
with the clerk of the chancery court of the proper county, to be
recorded . . . ." Miss.Code Ann. §89
-5-3 (1972). "But as between the parties and their heirs,
and as to all subsequent purchasers with notice or without
valuable consideration, said instruments shall nevertheless be
valid and binding." Id. In Burkett v. Peoples Bank
of Biloxi, 225 Miss. 291, 294, 83 So.2d 185, 187 (1955), the
Mississippi Supreme Court held that this statute "applies
with as much force to a creditor obtaining a lien by judgment as
it does to a subsequent purchaser or encumbrancer; and creditors
without notice and subsequent purchasers for value without notice
are on the same footing and are protected to the same
extent." A
deed of trust is not eligible for recordation unless it is
properly acknowledged, and an instrument that does not contain a
proper acknowledgment does not impart constructive notice to
creditors or bona fide purchasers, pursuant to Miss. Code Ann. §89
-3-1 (1972): [A]
written instrument of or concerning the sale of lands . . . shall
not be admitted to record in the clerk's office unless the
execution thereof be first acknowledged or proved, and the
acknowledgment or proof duly certified by an officer competent to
take the same in the manner directed by this chapter; and any such
instrument which is admitted to record without such acknowledgment
or proof shall not be notice to creditors or subsequent purchasers
for valuable consideration. It
is undisputed, and the district court correctly held, that the
original deed of trust dated Under
Mississippi law, the taking of an acknowledgment is a judicial or
quasi-judicial rather than a ministerial act, and . . . this act
cannot be performed by a grantee in the deed, or by one who,
though not a grantee, is the procuring cause of the conveyance or
has a financial or beneficial interest in the transaction . . . . It
would be against public policy to permit a grantee, mortgagee, or
trustee, or other person beneficially interested in the
transaction to take an acknowledgment to an instrument in which he
is named as a party or has a beneficial interest. The object of
the law is to prevent the perpetration of fraud, and the policy of
the law seems to be that the officer taking the acknowledgment
must not be in such relationship to the grantee that there shall
exist any temptation for the officer to do aught but his duty
impartially. Mills v. Damson Oil Corp., 686 F.2d 1096, 1102-03 (5th Cir.1982) (quoting 1 Delvin
on Real Estate and Deeds, §477d (3d Ed. 1911)). The
acknowledgment taken by the trustee in this case was thus void. 2
Jones v. Porter, 59 Miss. 628 (1882) (where the
acknowledgment of a grantor was taken by the husband of the
grantee, who was the procuring cause of the conveyance, the
acknowledgment was void). Because the acknowledgment was void, the
deed of trust was not eligible for recordation and, even though
the deed was recorded, it nevertheless did not impart constructive
notice to creditors under Miss.Code Ann. §89
-3-1. See also Holden v. Brimage, 72 Miss. at 229-30,
18 So. at 383; Wasson v. Connor 54 Miss. 351, 352-53 (1877)
(where grantee acknowledged grantor's signature, "[t]he deed
never having been legally acknowledged, [it] was, of course,
improperly recorded, and it afforded notice to nobody"). In
Mills v. Damson Oil Corp., this court stated that "[i]t
is well settled in Mississippi that constructive notice is not
imparted to bona fide purchasers by recording a defectively
acknowledged deed." 686 F.2d at 1103-04 (citing Ligon v.
Barton, 88 Miss. 135, 40 So. 555 (1906); Elmslie v.
Thurman, 87 Miss. 537, 40 So. 67 (1905); Smith v. McIntosh,
176 Miss. 725, 170 So. 303 (1936)). The court noted, however, that
the cited cases, as well as most of the other cases that describe
the nature of the defect involved, concern patent defects, i.e.,
"defects which are apparent on the face of the
acknowledgment." Mills, 686 F.2d at 1104. The defect
in Mills was "entirely latent" because there was
"nothing in the deed or its acknowledgment to indicate that
the named grantee, Lurline Daws, and S.B. Daws, who took the
acknowledgment, were related to each other, or, indeed, that
either was married." Id. Because only one Mississippi
case, Roebuck v. Bailey, 176 Miss. 234, 166 So. 358 (1936),
discussed the effect of a latent defect in an acknowledgment on
bona fide purchasers, and because in that case the Mississippi
court recognized a potential distinction between latently and
patently defective acknowledgments, this court certified the
following question to the Mississippi Supreme Court: Whether
a defectively acknowledged and recorded deed imparts constructive
notice if the defect in the acknowledgment is entirely latent? Mills, 686 F.2d at 1114. The Mississippi Supreme Court answered
"yes." Mills v. Damson Oil Corp., 437 So.2d 1005,
1006 (Miss. 1983). Nothing
in the Mississippi Supreme Court's answer to the certified
question in Mills casts any doubt on the cases involving
defectively acknowledged deeds in which the defects are patent.
Those cases hold that the recording of such defectively
acknowledged deeds does not impart constructive notice to bona
fide purchasers. See Mills, 686 F.2d at 1103-04 and cases
cited therein; see also Cotton v. McConnell, 435 So.2d 683
(Miss. 1983) (a deed with a defective acknowledgment is not
eligible for recordation, and is not effective as to third
parties, under §89 -3-1,
but it is wholly effective between the parties to it). The
original deed of trust in this case names Robert L. Taylor as
trustee, and Robert L. Taylor acknowledged the signature of the
grantor. Thus, it is clear that the defect in the acknowledgment
is patent, and the district court correctly held that the deed did
not give constructive notice to subsequent bona fide purchasers
and creditors. We therefore conclude that, under Mississippi law,
the recordation of the defectively acknowledged deed of trust did
not impart constructive notice, and thus did not protect the
Bank's interest under the deed of trust against a subsequent
judgment lien creditor in the absence of actual notice to such a
subsequent judgment lien creditor. (2) The
district court held that, although the recordation of the
defective deed did not impart constructive notice, it could impart
actual notice "to anyone who cared to review the records of
the Chancery Clerk." The district court then held that the
United States did have actual notice, apparently because Under
Mississippi law, a prior deed, whether recorded or unrecorded, is
good against a subsequent purchaser or creditor with actual notice
of it. Dixon & Sharkey v. Lacoste, 9 Miss. 70, 107
(1843). In addition, a recorded deed that is not acknowledged is
valid against "one who sees upon the record and reads an
instrument improperly recorded, because not acknowledged or proved
as required by law." Woods v. Garnett, 72 Miss. 78, 16
So. 390, 391 (1894). In order to have "actual notice," a
party must be "aware of the nature and purposes of the
deed." Bass v. Estill, 50 Miss. 300, 306 (1874).
Actual notice is defined by Black's Law Dictionary (5th ed. 1979)
as "such notice as is positively proved to have been given to
a party directly and personally, or such as he is presumed to have
received personally because the evidence within his knowledge was
sufficient to put him upon inquiry." The
appellees contend, and the district court held, that the United
States had actual notice because the deed was recorded and could
have been located had the United States searched the records. This
argument confuses the concepts of actual notice and constructive
notice. The mere recording of a deed does not provide actual
notice to strangers to a transaction who are not in possession of
facts that would place them on inquiry notice. Rather, the primary
purpose of recording is to impart constructive notice. The
appellees contend, however, that the United States had a
"duty to inquire" because its agents had knowledge of
sufficient facts to place it upon inquiry notice to check the
title to the subject property. "Inquiry notice," as
recognized in Mississippi, arises when a party has actual notice
or knowledge of facts that would lead a reasonably prudent person
to question the sufficiency of title to property. E.g., Burkett
v. Peoples Bank of Biloxi, 225 Miss. 291, 83 So.2d 185, 188
(1955). A party who has inquiry notice "is charged with
notice of all those facts which could or would be disclosed by a
diligent and careful investigation." Id. Under
Mississippi law, a party is not on inquiry notice from the mere
recordation of a deed evidencing an interest in property. C&D
Investment Co. v. Gulf Transport Co., 526 So.2d 526, 530
(Miss. 1988). In
support of their position that the United States had a duty to
inquire, the appellees argue, without any citation of authority,
that the fact that the taxpayer had not paid its taxes should have
provided notice to the United States that the title to any
property owned by the taxpayer would be subject to other liens or
problems. We disagree. The fact that the taxpayer was delinquent
in its federal tax obligations created no inferences concerning
the taxpayer's title to any particular property and falls short of
the type of information necessary to place the United States on
inquiry notice. We also reject the appellees' argument that the
taxpayer's filing of a petition in bankruptcy should have led the
United States to conduct an investigation that would have resulted
in the discovery of the Bank's deed of trust. We need not consider
whether the taxpayer's filing of its bankruptcy petition was
sufficient to put the We
conclude that the record does not support the district court's
holding that the United States had actual notice of the defective
deed of trust. The record contains no evidence indicating that the
United States was aware of the deed of trust prior to the time it
filed its federal tax liens, or that it possessed any knowledge of
circumstances that would have put it on inquiry which, if pursued,
would have led it to actual knowledge of the defective deed of
trust. Although the district court's statement that the defective
deed of trust could give actual notice "to anyone who cared
to review the records of the Chancery Clerk" is correct as
far as it goes, there is no evidence that any agent of the United
States reviewed the records of the Harrison County Chancery Clerk,
and, under the facts in the record, the United States did not have
inquiry notice of the existence of the deed. (3) The
district court further held that the defectively acknowledged deed
of trust gave the Bank "equitable title" sufficient to
defeat the claims of "a subsequent purchaser or party coming
after the document in question, who has notice of the questionable
document." Even if we assume that the defectively
acknowledged deed of trust gave the Bank "equitable
title," the United States, as we have already noted, did not
have notice of the defectively acknowledged deed of trust. We
reject the appellees' argument that, when the defectively
acknowledged deed was recorded, the United States received
constructive notice of the Bank's equitable interest because, as
we have already held, the recordation of the defectively
acknowledged deed did not impart constructive notice to subsequent
creditors under Mississippi law. We therefore conclude that, under
Mississippi law, the Bank's interest in the property under the
defectively acknowledged deed of trust was not "protected by
state law against a subsequent judgment lien creditor." The
district court therefore erred in holding that the Bank is a
"holder of a security interest" with respect to the
property within the meaning of 26 U.S.C. §6323(h)(1)
. Thus, the Bank is not entitled to the protection of §6323(a)
. 3 C The district court's holding that the federal tax lien was extinguished in the foreclosure sale of the property under the provisions of 26 U.S.C. §7425(b) is based on its erroneous conclusion that the tax liens were junior to the Bank's lien. As we have already held, the Bank's lien did not prime the federal tax liens. Section 7425(b) provides that, even if the government's lien is inferior under state law, it will not be discharged by the foreclosure sale unless the proper type of notice is given to the United States. Myers v. United States, [81-2 USTC ¶9490 ], 647 F.2d 591, 596-97 (5th Cir. 1981). It is undisputed that the United |