Contract Assignment Page1

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[93-1 USTC ¶50,308] Joe Conzola and Bernard N. Hochberg t/a Jonar, a Texas partnership, Plaintiff v. City of Miami, a municipal corporation, Defendant/ /Counter-Plaintiff/Third-Party Plaintiff v. Internal Revenue Service, an agency of the United States, and INTEXX Corporation, a Nevada corporation, Third-Party Defendants

U.S. District Court, So. Dist. Fla. , 90-0001-CIV-Graham, 1/4/93

[Code Secs. 6321 and 6323 ]

Lien for tax: Property subject to lien: Priority of security interest.--A secured party's claim to funds prevailed over the government's lien under the "first in time, first in right" rule, since the interest, which was assigned to the secured party, was perfected before the IRS filed its notice of tax lien. Although the interest came into existence before the federal lien for taxes arose, such lien may attach to after-acquired property. The assignee's interest in the property was perfected at the time of assignment, even though no financing statement was filed. Under state ( Nevada ) law, the assignee was not required to file a financing statement because the assignment did not constitute a significant part of the assignor's accounts.

MEMORANDUM OPINION AND FINAL JUDGMENT

GRAHAM, District Judge:

Plaintiffs, Joe Conzola and Bernard Hochberg, t/a Jonar ("Jonar") filed suit against the City of Miami ("the City") to recover funds due under an alleged contract between Jonar and the City. The City filed an action for interpleader against Third-Party Defendants Intexx Corporation ("Intexx") and the Internal Revenue Service ("IRS"), who made claims to all or part of the money demanded by Jonar. The City's complaint for interpleader was granted and the funds due under the contract were deposited into the court's registry. Subsequently, a default was entered against Intexx for failure to serve or file any response to the third-party complaint. Since both Jonar and the IRS claim an interest in the funds, the action proceeded in order to determine the party entitled to the funds. Prior to trial, the United States of America was substituted as a party in place of the IRS ("the Government").

This matter was tried on August 18, 1992 before the court sitting without a jury. Having heard and considered the testimony of the witnesses and the arguments of counsel, and reviewed the exhibits presented, the court makes the following findings of fact and conclusions of law.

I. FINDINGS OF FACT

In July 1988, the City sought bids on the construction of two prefabricated floorless restroom buildings ("Modulars"). The sole bidder for the construction project was Intexx, whose principal place of business was Washoe County , Reno , Nevada . In October 1988, Intexx's bid was accepted by the Miami City Commission, which must approve all bids exceeding $4,500.00. The City prepared and sent a purchase order to Intexx.

Blazer Manufacturing, Inc. ("Blazer"), a Texas corporation which built modular restroom facilities, was engaged by Intexx to build the Modulars ordered by the City. These Modulars were to be made at Blazer's manufacturing site located on Texas property it leased from Jonar. Intexx encountered financial difficulties and could not fulfill its contract with the City. Blazer defaulted on the lease agreement between it and Jonar, resulting in the termination of the lease.

On November 5, 1988, Blazer, Intexx, Jonar and Nevada National Bank, a Nevada corporation ("NNB") entered into an agreement ("the Agreement") whereby Blazer, Intexx and NNB released to Jonar all of their respective rights, title and interest to the buildings located on Jonar's property, including the partially constructed Modulars. The Agreement allocated the proceeds of the sale of certain properties, including the Modulars, to Jonar and directed that payment be made directly to Jonar. Jonar accepted the transfer and release of the Modulars and agreed to use its best efforts to complete the Modulars and deliver them to the City. Jonar also agreed to file "all such lien notices or stop notices which may be required in the applicable jurisdictions to protect the right of Jonar to collect such proceeds against the claims of any and all third party creditors, including but not limited to the State of California." To date, Jonar has not filed any notices regarding the assignment of proceeds at issue here.

Jonar advised the City that it would not deliver the completed Modulars until it received a purchase order directed to Jonar. In April 1989, Jonar received a purchase order for the Modulars at the agreed purchase price of $99,758.00.

An authorized representative of the Secretary of the Treasury assessed taxes against Intexx in the amounts listed as follows: $20,275.72 was assessed on July 6, 1987 (notice was filed on April 23, 1991); $4,011.67 was assessed on March 26, 1990 (notice was filed on May 9, 1990); $11,104.08 was assessed on July 15, 1991 (notice was filed on May 12, 1992; and $320.35 was assessed on March 13, 1989 (notice was filed on April 23, 1991).

II. CONCLUSIONS OF LAW

When a taxpayer fails to pay his tax after notice and demand has been made, a federal tax lien arises from the date of assessment. In re Hamilton Associates, Inc., 66 B.R. 674 (Bankr. D. Nev. 1986). The tax lien attaches to "all property and rights to property, whether real or personal" belonging to the taxpayer. 26 U.S.C. §6321 . "The threshold question in any case involving the federal government's assertion of its tax lien is whether and to what extent the taxpayer had "property" within the meaning of the federal tax lien statute." Randall v. H. Nakashima & Co., Ltd. [76-2 USTC ¶9770 ], 542 F.2d 270, 272 (5th Cir. 1976); see also, Nevada R. & S. Co. v. United States Dep't. of Treasury I.R.S. [74-2 USTC ¶9617 ], 376 F. Supp. 161 (D. Nev. 1974) ("NRSC"). State law determines whether a taxpayer has property to which a tax lien may attach. Randall [76-2 USTC ¶9770 ], 542 F.2d at 272; Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 512-14 (1960). If, under applicable state law, the taxpayer has no property interests in the funds sought to be subjected to a tax lien, there is nothing to which the lien can attach. NRSC, 376 F.Supp. at 164, citing United States v. Durham Lumber Co. [60-2 USTC ¶9539 ], 363 U.S. 522 (1960). In this case, Nevada law governs whether Intexx had property upon which a lien could be attached since Intexx's principal place of business is Nevada . Thus, the tax lien can attach to the contract amount at issue here only if Nevada law establishes Intexx had a property interest in the money.

A federal tax lien extends to after-acquired property and the lien applies to "property owned by the delinquent at any time during the life of the lien", Randall [76-2 USTC ¶9770 ], 542 F.2d at 275, citing Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265, 268-69 (1945). Here, the earliest assessment of tax liability was on July 6, 1987 . ¹ Intexx entered into its contract with the City in October 1988 and the assignment by Intexx to Jonar did not occur until November 5, 1988 . Thus, Intexx had property or rights to property to which a tax lien could attach.

The court must look to federal law to determine matters of priority once it is determined that a tax lien attaches. Randall [76-2 USTC ¶9770 ], 542 F.2d at 272; Aquilino [60-2 USTC ¶9538 ], 363 U.S. at 512-14 (1960). A tax lien imposed pursuant to section 6321 is not valid against "any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor" until notice of the lien is filed by the Secretary of the Treasury. 26 U.S.C. §6323 . In the instant case, the notice of tax lien regarding the July 6, 1987 assessment was not filed until April 23, 1991 , which is more than two years after the Agreement assigning Intexx's rights under the contract with the City to Jonar was entered.

The Government argues that Jonar was required by the Agreement and Nevada law to perfect its interest in the contract proceeds and because it did not, Jonar's interest is inferior to the Government's perfected interests. The Government asserts that, pursuant to N.R.S. §9302, Jonar was required to file a financing statement to perfect its interest in the assignment. Jonar argues it was not required to file any document in order to perfect its interest in the contract proceeds. The court agrees with Jonar's assertion.

Under Nevada law, Jonar was not required to file a financing statement in order to perfect its interest in Intexx's rights under the contract with the City because it was excused from filing a financing statement. N.R.S. §104.9302(e) provides that filing of a financing statement is not required to perfect a security interest in "[a]n assignment of accounts which does not alone or in conjunction with other assignments to the same assignee transfer a significant part of the outstanding accounts of the assignor." A thorough review of the Agreement reveals that Intexx's assignment to Jonar did not transfer a "significant part" of Intexx's outstanding accounts to Jonar, rather the assignment transferred Intexx's "accounts" in certain specified areas. Applying §104.9302(e) to the facts, Jonar was not required to file a financing agreement to perfect its interest under the Agreement. ² The court also notes that the Government's argument that Jonar was required to file notices pursuant to paragraph 1.b. of the Agreement fails. That paragraph states that Jonar agrees to file "all such lien notices or stop notices which may be required in the applicable jurisdictions to protect the right of Jonar to collect such proceeds against the claims of any and all third party creditors". (emphasis added). Because Nevada law does not require Jonar to file a notice in order to perfect its interest, Jonar was not required to do so under the Agreement.

The assignment was complete as between Jonar and Intexx the moment it was made, see NRSC, 376 F.Supp. at 164, citing Jones v. P.W.L. & F. Co., 13 Nev. 359, 373 (1878), and Jonar's interest in the contract proceeds attached at that time. Pursuant to N.R.S. §104.9303, a security interest is perfected when it has attached and when all of the applicable steps required for perfection have been taken. Since, as stated before, Jonar was not required to file a financing statement to perfect its interest, the assignment was perfected on November 5, 1988 when the parties entered the Agreement.

Having determined that Jonar's interest in the assignment has been perfected, the court now addresses basic federal rule that "first in time, first in right" determines whether a federal tax lien or competing state-created lien has priority. Valley Bank of Nevada v. City of Henderson [82-1 USTC ¶9122 ], 528 F.Supp. 907, 913 (D. Nev. 1981), citing United States v. City of New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 85 (1954). Under this standard, a federal tax lien takes priority over a state-created lien unless the state lien is specific and perfected in the federal sense before the federal tax lien arises. United States v. Trigg [72-2 USTC ¶9642 ], 465 F.2d 1264, 1269 (8th Cir. 1972), cert. denied, 410 U.S. 909 (1973); see also City of Henderson [82-1 USTC ¶9122 ], 528 F.Supp. at 913. Under 26 U.S.C. §6323(a) , a federal tax lien is not valid against a holder of a security interest until the tax lien is filed. In other words, to obtain a security interest sufficient to defeat an unfiled federal tax lien, Jonar must perfect its security interest against a hypothetical judgment lien creditor prior to the time the Government files a notice of federal tax lien. City of Henderson [82-1 USTC ¶9122 ], 528 F.Supp. at 912; N.R.S. §104.9301(1)(b). A security interest is defined in 26 U.S.C. §6323 (h)(1) as follows:

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 at any time (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.

In the case at bar, Jonar held a security interest in the assignment from Intexx which was perfected at the date of the November 5, 1988 Agreement. Because the Government did not file notice of its lien until April 23, 1991 , Jonar's security interest takes priority over the Government's lien. The court does not address Jonar's argument that it entered into a separate contract with the City concerning the Modulars since it finds the Government's lien to be subordinate to Jonar's security interest.

III. CONCLUSION

Based upon the foregoing discussion, it is ORDERED AND ADJUDGED that Jonar's claim to the interplead fund is GRANTED and the Government's claim against the interplead fund is DISMISSED to the extent it conflicts with the full payment of Jonar's claim to the fund.

DONE AND ORDERED.

¹ The court will discuss only the July 6, 1987 tax assessment since the other three assessments arose after the November 5, 1988 Agreement. See discussion infra in text regarding perfection of Jonar's interest on the date of the Agreement.

² The court notes there may be an alternate basis for concluding that Jonar was not required to file a financing statement in order to perfect its interest. Article 9 of the Uniform Commercial Code ("UCC") and the correlative section of the Nevada commercial code, N.R.S. §104.9104, exempts certain transactions from the scope of the UCC. Specifically, N.R.S. §104.9104(6) provides that the UCC does not apply to "a transfer of a right to payment under a contract to an assignee who is also to do the performance under the contract". In paragraph 1 of the Agreement titled "Assignment to Jonar", Jonar was required to use its best efforts to complete construction of the Modulars and deliver the Modulars to the City as part of the assignment of interest under the contract. Additionally, Charles Kaufman, III, the former chief executive officer of Intexx, testified by affidavit that all manufacturing for the City's Modulars was done by Jonar and Blazer. Thus, there is evidence in the record which could support the conclusion that the transaction at issue here does not fall within the scope of the UCC. However, because the court bases its holding on §104.9302(e), it is unnecessary to reach this issue.

 

 

[60-2 USTC ¶9582]Lubbock Independent School District v. A. R. Preston, d/b/a Al Preston Electric, et al.

District Court, Lubbock County, Texas, No. 32169, 5/16/60

[1954 Code Sec. 6321]

Tax lien: Government as intervenor: Priority of judgment creditor and surety.--A surety's claim for interest expended by it in making good its contract of suretyship, and the claim of a judgment creditor for materials furnished and for attorney fees in obtaining such judgment, were superior and had priority over the claim of the United States of America, as intervenor, on its tax lien as to funds held by a school district and due the delinquent taxpayer under a contract for the construction of a high school.

McWhorter, Cobb and Johnson, 820 Lubbock National Bldg., Lubbock , Tex. , for plaintiff. Key & Carr, 314 Lubbock National Bank Bldg., Crenshaw, Dupree & Milam, P. O. Box 1499, Nelson, McCleskey & Harringer, Central American Life Bldg., and Kilmer B. Corbin, Lubbock National Bank Bldg., all of Lubbock, Tex., and W. B. West, III, United States Attorney, Fort Worth 2, Tex., for defendants.

Judgment

LINDSEY, Presiding Judge:

On this the 2nd day of May, A. D. 1960, during a regular term of this Court and at the time properly set for the trial of this case with all parties having received proper notice of such setting, there came on for hearing before the Court, the above entitled and numbered cause, and the Plaintiff, Lubbock Independent School District, appeared by its Attorney of Record and the Defendants, United States Fidelity and Guaranty Company, General Electric Supply Company, a division of General Electric Company, a corporation, The First National Bank of Lubbock, Texas, and the United States of America and Ellis Campbell, Jr., in his capacity as District Director of Internal Revenue, all appeared by their respective Attorneys of Record, and all parties so appearing announced ready for trial and waived a jury and agreed to submit all matters of fact, as well as of law, to the Court without the intervention of a jury and the Defendant, A. R. Preston, d/b/a Al Preston Electric, having been properly and duly served herein, came not, but wholly made default and his attorney, Kilmer Corbin of Lubbock, Texas, having agreed in writing to this case proceeding to trial at the time duly set therefor on May 2, 1960, this matter proceeded to trial, and the Court having considered the pleadings, stipulation of facts, and argument of Counsel, is of the opinion that the following findings of fact should be made and that the following Judgment should be entered and is here entered, to-wit:

I. The Court does find that the Parties in interest in this suit have entered into a stipulation which has been made a part of the record in this cause and the facts agreed to therein are hereby adopted as the findings of fact of this Court and said stipulation is hereby in all things approved.

It is the further finding of this Court that the claim of International Business Machines Corporation, one of the original Defendants in this cause, has been satisfied by United States Fidelity and Guaranty Company, and that thereby, United States Fidelity and Guaranty Company is the successor in interest by right of subrogation to the said claim of International Business Machines Corporation, and the said claim of International Business Machines Corporation is included in the claim allowed in favor of United States Fidelity and Guaranty Company, hereinafter set out.

It is the further finding of this Court, that heretofore and on or about March 13, 1959, General Electric Supply Company did recover an Interlocutory Judgment against the Defendant, A. R. Preston, d/b/a Preston Electric Company in the amount of $9,245.25 upon its account and in the amount of $755.00 attorney's fees, together with all costs and interests thereon from the date of such Judgment at the rate of six (6%) per cent per annum; and that said Interlocutory Judgment should now become the Judgment of this Court and be herein affirmed.

It is the further finding of this Court that United States Fidelity and Guaranty Company has heretofore paid out upon its bond in this case, the sum of $33,832.70 and that it is additionally obligated to pay upon said bond the sum of $3,374.82 to General Electric Supply Company in satisfaction of a lien perfected by said General Electric Supply Company upon said Bond in accordance with Article 5160 of the Revised Civil Statutes of Texas and that therefore, it is the finding of this Court that United States Fidelity and Guaranty Company has, and will pay out upon its said bond a total sum of $37,207.52 by reason of which it is entitled to participate to that extent in the funds retained by Lubbock Independent School District upon the Wilson Jr. High School job, the same being the work upon which the bond of United States Fidelity and Guaranty Company was issued.

It is the further finding of this Court that General Electric Supply Company did furnish materials to A. R. Preston, d/b/a Preston Electric Company, for the Wilson Jr. High School building to the extent of $9,245.25 for which it has not been paid and to this extent of $9,245.25 the said General Electric Supply Company is entitled to participate in the distribution of the funds retained by Lubbock Independent School District upon said job and contract.

It is the further finding of this Court that McWhorter, Cobb & Johnson, Attorneys for Lubbock Independent School District in connection with the representation of said School District in this cause, is entitled to a reasonable attorney's fee therefor and that the same should be paid out of the funds retained by said School District; and that a reasonable attorney's fee for such services is the amount of $750.00.

It is the further finding of this Court that the said Attorney's fee of $750.00 should be paid to McWhorter, Cobb and Johnson, and that all Court Costs herein should also first be paid out of said funds retained by such School District . It is the finding of this Court that said School District retained funds upon the Wilson Jr. High School Contract in the amount of $18,221.73 and that the School District has now paid into the Registry of this Court that said sum of $18,221.73; and that said funds should be disbursed under the facts and the law in this case as follows, to-wit:

A. To McWhorter, Cobb & Johnson, Attorney's fees in the amount of $750.00.

B. To the Clerk of this Court for Court Costs herein the sum of $55.30.

C. To United States Fidelity and Guaranty Company the sum of $13,950.13.

D. To General Electric Supply Company, a division of General Electric Company, a corporation, the sum of $3,466.30.

It is the further finding of this Court that Alvin Reed Preston, one of the Defendants herein, is indebted to the United States of America for Federal Taxes in the amount of $6,614.63 plus interest thereon as alleged by the United States of America in its pleading herein labeled "Intervenor's Complaint" and that the said United States of America did file notice of Tax Liens upon the dates as alleged in its said "Intervenor's Complaint." It is the further finding of this Court that the claims of McWhorter, Cobb & Johnson, General Electric Supply Company and the United States Fidelity and Guaranty Company and the Court Costs, all as herein elsewhere set out, are claims that are superior and have priority to the claims of the United States of America insofar as the funds retained by the Lubbock Independent School District are concerned and that these said prior claims are in such amounts as to fully exhaust all of the funds retained by Lubbock Independent School District and that therefore, the United States of America has no claim thereto and is not entitled to participate in the distribution of the funds so retained by the Lubbock Independent School District.

II. IT IS THEREFORE ADJUDGED, ORDERED AND DECREED That each of the following do have and recover against Alvin Reed Preston, d/b/a Al Preston Electric Company, and Al Preston Electric Company, judgments in the following amounts, to-wit:

"A. United States Fidelity and Guaranty Company is hereby awarded a Judgment against the said Alvin Reed Preston, d/b/a Preston Electric Company and Preston Electric Company in the amount of $37,207.52.

"B. General Electric Supply Company, a division of General Electric Company, a Corporation, is hereby awarded a Judgment against the said Alvin Reed Preston, d/b/a Preston Electric Company and Preston Electric Company in the amount of $9,245.25 plus attorney's fees in the amount of $755.00.

"C. The United States of America is hereby awarded a Judgment against the said Alvin Reed Preston, d/b/a Preston Electric Company and Preston Electric Company in the amount of $6,614.63."

III. IT IS FURTHER ORDERED, ADJUDGED, and DECREED That the $18,221.73 paid into Court by Lubbock Independent School District as the amount retained by said District from the Wilson Jr. High School contract, be paid by the Clerk and disbursed as follows, to-wit:

A. To McWhorter, Cobb & Johnson,

Attorney's fees in the

amount of ............................           $ 750.00

B. To the Clerk of this Court

for Court Costs herein, the

sum of ...............................            $ 55.30

C. To 

United States

 Fidelity and

Guaranty Company the sum

of ...................................         $13,950.13

D. To General Electric Supply

Company, a division of General

Electric Company, a

corporation the sum of ...............         $ 3,466.30

 

IV. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED That the Judgment of General Electric Supply Company for $9,245.25 hereinabove more specifically set out, be and is hereby credited with the sum of $841.12 which is paid to General Electric Supply Company out of the funds retained by Lubbock Independent School District .

V. IT IS FURTHER ORDERED, ADJUDGED, AND DECREED That interest at the rate of six (6%) per cent per annum shall accrue upon the General Electric Supply Company Judgment against Preston from March 13, 1959, and upon the Judgment of United States Fidelity and Guaranty Company against Preston from May 2, 1960, and upon the Judgment of United States of America against Preston from May 2, 1960.

VI. It is also ORDERED, ADJUDGED, AND DECREED that the lien of the United States of America against Alvin Reed Preston and any property of the said Alvin Reed Preston, which lien or liens were created by reason of the filing in Lubbock County, Texas, of the Notice of such liens all as plead in "Intervenor's Complaint" filed herein by the United States of America, be and the same are hereby ordered foreclosed, for which execution may issue. In this connection it is specifically ordered by this Court that neither the said Alvin Reed Preston nor the United States of America have any property or rights to property in and to the funds retained by the Lubbock Independent School District and herein elsewhere ordered disbursed, nor in the obligations of United States Fidelity and Guaranty Company under the bond issued by it on the Wilson Jr. High School Contract.

VII. It is further ORDERED, ADJUDGED and DECREED that United States Fidelity and Guaranty Company shall pay to General Electric Supply Company the sum of $3,374.82 in satisfaction of the lien perfected by General Electric Supply Company upon the bond of United States Fidelity and Guaranty Company.

VIII. It is also ORDERED, ADJUDGED AND DECREED that the Lubbock Independent School District is released from all further claims by any of the Parties of this suit arising out of the Wilson Jr. High School Contract.

IX. It is further the ORDER of this Court that all relief not herein specifically granted is denied.

X. For all of the relief herein granted and not satisfied, execution may issue.

 

 

[56-2 USTC ¶9930]United States Fidelity and Guaranty Company, Plaintiff v. Floyd Miller, Trading and Doing Business as Floyd Miller Plumbing Company; Square Supply Company, a Corporation, Defendants, and United States of America, Intervenor

U. S. District Court, West. Dist. N. C., Asheville Div., Civil No. 1520, 143 FSupp 941, 9/15/56

[1954 Code Sec. 6321--similar to 1939 Code Sec. 3670]

Collection: Tax liens: Funds in hands of surety: Government intervenor.--Taxpayer did the plumbing work under a subcontract on a federal housing construction project, and on notice being given to the primary contractor the balance due taxpayer was paid to the latter's surety to comply with the terms of the bond and to pay all obligations due those who supplied labor and materials. The government levied upon this money for tax liens, and the surety filed an interpleader suit against taxpayer and a material furnisher who had not yet been paid, in which action the government intervened. The material furnisher was entitled to the remainder of the funds on deposit, since the tax liens extended only to real or personal property and rights thereto which belonged to taxpayer. The latter or his surety, on default coming about, had no property rights in the money due until the contract was completed and all labor and materialmen were paid.

Kingsland Van Winkle, Asheville , N. C., for plaintiff. Uzzell and DuMont, Asheville, N. C., for defendant, Square Supply Company, J. M. Baley, Jr., United States Attorney, Asheville, N. C., for intervenor.

Memorandum Opinion

[Interpleader Suit by Surety]

WARLICK, District Judge:

This is an Interpleader Suit, brought under Title 28, USCA, Sections 1335, 1397, 2361 and 2410 by plaintiff, United States Fidelity and Guaranty Company against one Floyd Miller who did business as the Floyd Miller Plumbing Company; the Square Supply Company and the United States . The amount in controversy exceeds the sum of $500.

From the evidence heard the following facts are found by the Court:

The Plaintiff is a Maryland corporation. The defendant, Floyd Miller is a citizen of Haywood County in the Western District of North Carolina. The defendant, Square Supply Company is a Tennessee corporation.

Simultaneously with the institution of this action the plaintiff paid into the registry of this court the sum of $3,281.22, which is the basis of this controversy.

In March 1952 the Osceola Construction Company, a Florida corporation, was the successful bidder for the construction of a Federal housing project in Hogansville, Georgia, and as such prime contractor entered into a sub contract with Floyd Miller, trading as the Floyd Miller Plumbing Company for the plumbing and heating work on said project, at the agreed price of $66,500. Thereupon plaintiff, on March 6, 1952, became surety for Floyd Miller and executed a performance bond in accordance with the terms and provisions of the Miller Act, Title 40, USCA, Sec. 270(a), guaranteeing, as the law would require, the faithful performance of his sub contract with the Osceola Construction Company and for the payment of all labor and material claims. Work on said sub contract began on April 1, 1952 .

[Sub-Contractor Indebted to Materialman]

The defendant, Square Supply Company supplied the bigger portion of the building materials to Miller in the performance of his contract, and in June 1953 after all credits had been given, Miller was indebted to it for materials furnished to him and used in the work of his sub contract the sum of $14,133.98. At that time Miller had completed his contract except for several minor items, but was in default under his sub contract to material furnishers, and on notice being given to the original contractor, the Osceola Construction Company, the balance due Miller was paid to the plaintiff herein as his surety for the express purpose of complying with the terms of the bond of suretyship and the paying of all of the obligations due to those who supplied labor and materials. The check, dated December 15, 1953 , being made payable to Floyd Miller Plumbing Company and the plaintiff, the United States Fidelity and Guaranty Company, and being in the sum of $5,536.09. This amount was arrived at by the accounting methods of the Osceola Construction Company. It was delivered to the plaintiff, and thereupon certified for payment.

That at the time of said notice and the resulting payment, Miller was indebted to the following three concerns for material furnished:

The Square Supply Company;

The Engineering and Equipment Company;

The Nolan Company.

Miller refused to endorse the check for that he contended the amount did not represent that due by the construction company, insisting that it was some $1,600 short. Finally and on June 17, 1954, and after much persuasion by all parties concerned, Miller endorsed the check in the following words: "Pay to the order of United States Fidelity and Guaranty Company, Atlanta, Georgia," and left it with the plaintiff, his surety, for the purposes for which it was intended.

This check was then forwarded to the home office of plaintiff in Baltimore , Maryland and deposited to its credit for disbursement. Subsequently plaintiff paid the claims in full of the Engineering and Equipment Company and the Nolan Company, and the amount deposited in the registry of the court represents the balance on hand from the payment received from the Osceola Construction Company.

Plaintiff continued to hold the balance of the funds obtained from the check, even in the face of repeated demands of defendant Square supply Company for payment to it of the amount held.

[Federal Tax Lien Filed Against Sub-Contractor]

On December 13, 1954 the District Collector of Internal Revenue levied upon this money in the hands of the plaintiff for tax liens theretofore filed against Miller for Federal Unemployment tax, and Withholding and Social Security tax, for various periods, as is shown by the evidence, all of which, under the law would be liens in favor of the United States against all property and rights to property, real and personal, belonging to Miller--in the net amount of $5,860.46, and interest.

The defendant Miller was properly served and failed to file an answer or otherwise plead, and made no appearance whatsoever in the action, obviously asserting no claim to the funds involved in this controversy.

After the action was filed by plaintiff the United States made a motion to dismiss the action in main as against it, and subsequently was granted leave to intervene as a party plaintiff and to file its complaint as such intervenor.

The question for determination is whether the defendant, Square Supply Company or the intervenor, the United States, is entitled to the remainder of the funds deposited originally with the plaintiff by the contractor and now held in the registry of this court; or more simply stated, was the money herein ever a property or property right belonging to Miller?

Under the Internal Revenue Code 26 USCA, Sec. 6321, it is provided:

"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount * * * shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."

This is the applicable section of the law. Under that section nothing could be plainer than that a lien for federal taxes extends only to property and rights to property, real or personal, which belongs to the taxpayer. The statute so provides.

This construction has been well night universally placed upon like circumstances by the courts. Cannon v. Nicholas, 10 Cir., 1935, 80 Fed. (2d) 934 [35-2 USTC ¶9672]; United States v. Long Island Drug Co. , 2 Cir., 1940, 115 Fed. (2d) 983 [41-1 USTC ¶9140]; United States v. Warren R. Co., 2 Cir., 1942, 127 Fed. (2d) 134; U. S. v. Burgo, et al., 175 Fed. (2d) 196 [49-1 USTC ¶9307].

Further the courts have consistently held that a contractor or a sub contractor or his surety on default coming about, has no property rights in monies due under contracts for construction until and after performance is complete and all labor and materialmen have been paid in full. It is not disputed that Miller was in default in the performance of his sub contract and that he was and now is insolvent. He was indebted to at least three material furnishers and the amount that was due him by the original contract was far less than that owed by him to those who furnished the materials. This circumstance in itself worked a default on the part of Miller. Mr. Justice Cardozo, in a very able opinion, said:

"In what has been written we have assumed that the failure to pay materialmen was a default of such a nature as to impose a duty on the contractor to turn over the payments to the surety upon appropriate demand." Martin v. National Surety Co., et al., 300 U. S. 588.

Unquestionably Miller would have no interest whatever in the amount paid by the contractor to his surety, and evidently realizing such, has made no demand whatever. McGraw & Co. v. Sherman Plastering Co., 60 Fed. Supp. 504; affirmed 149 Fed. (2d) 301; Great American Indemnity Co. v. U. S. , 120 Fed. Supp., 445 [54-2 USTC ¶9469]; New York Casualty Co. v. Zwerner, 58 Fed. Supp. 473 [45-1 USTC ¶9140]; American Surety Co. v. Westinghouse Electric, 206 U. S. 133, 80 Law Ed. 105; National Surety Co. v. County Board of Education, 15 Fed. (2d) 993 (4th CCA). Nothing could be clearer therefore than that he had no property or rights to property in said payment. Since that is a fact the government's levy on the fund in the hand of the surety in Baltimore would be ineffectual as against the claim of the defendant, Square Supply Company.

The government places its right to the fund herein under its levy and the lien created thereby, USCA 6322, but since it is my opinion that the fund herein at no time was the property of Miller or that he had any right thereto, I am not impressed with this theory of the case as advanced by it.

I therefore conclude that the Square Supply Company is entitled to recover the fund now held in the registry of this court.

Counsel will submit decree carrying this into effect.

 

 

[57-1 USTC ¶9264]The Steelcraft Manufacturing Co., Plaintiff v. Orville J. Hewkin, Jr., d.b.a. Hewkin Construction Company, et al., Defendants, and United States of America, Intervenor

U. S. District Court, East. Dist. Ill., Civ. Action No. 1355-D, 148 FSupp 872, 11/15/56

[1939 Code Secs. 3670, 3671 and 3672--similar to 1954 Code Secs. 6321, 6322 and 6323, respectively]

Tax lien: Priority of claims: Contract assignee and materialmen v. government tax lien.--A steel manufacturing company deposited a sum in an interpleader suit between the government, certain materialmen and a contract assignee of the delinquent taxpayer, and asked that it be relieved from further liability on its payment bond. It had contracted to erect steel bins for a party; subletting the actual construction to the taxpayer, who immediately assigned his rights under the second contract to a bank to induce it to advance him funds. Upon completion of the contract, the taxpayer filed bankruptcy. The Court held that as the assignment to the bank was executed prior to the assessment of the unpaid taxes, it was superior to the government's lien. Upon finding that the materialmen had complied with the provisions of the Miller Act, 40 U. S. C. A. 270b(b) as to notice and the period in which claims were to be filed, the Court held that their claims were also superior to that of the government in that, as the manufacturing company was primarily liable on its payment bond for the unpaid material bills, it had a definite ownership in the funds due the taxpayer until the completion of the contract. The materialmen were thus third-party beneficiaries of the funds in the hands of the manufacturing company due the taxpayer. Since the taxpayer was not entitled to receive payment until the completion of the contract, the government lien never attached to this fund in that its rights could not rise higher than those of the taxpayer. Under the Miller Act, it was not necessary for the materialmen to reduce their claims to judgment. Being an assignee of the taxpayer, the bank stood in his shoes, and its claim was subordinate to those of the materialmen.

Paxton & Seasongood, by R. J. Katz, 1616 Union Central Bldg., Cincinnati, Ohio, and Steely, Norwood & Hegeler, 908 First National Bank Bldg., Danville, Ill., for plaintiff. Joseph H. Hedge, 223 No. Neil St., Champaign, Ill., for Orville J. Hewkin, Jr. William F. Woods, Commercial Bank Bldg., Champaign, Ill., for Thomas A. Hagan, Jr. John W. Schriber, 110 So. Race St., Urbana, Ill., for Hunter Lumber Co. Mitchem & Hendrix, 206 West Elm St., Urbana, Ill., for Champaign County Bank & Trust Co. Roger D. Doten of Dent, Hampton & Doten, 209 So. LaSalle St. , Chicago , Ill. , for Fidelity & Deposit Co. of Maryland . Dwight H. Doss, Kaiser Bldg., Monticello , Ill. , for Jesse Whitehouse. W. C. Noel Law Offices, 105 West Main St. , Urbana , Ill. , for Joseph T. Clancy. Wise & Meyer, 1106 First National Bank Bldg., Danville, Ill., for Ellis Gravel Co. C. M. Raemer, United States Attorney, and Charles R. Young, Assistant United States Attorney, Post Office Bldg., Danville, Ill., for the United States.

Opinion

FLATT, District Judge:

Steelcraft Manufacturing Company, an Ohio Corporation, filed suit in the nature of an interpleader praying that it be discharged from further liability on its payment bond executed under a contract with the Commodity Credit Corporation for the erection of steel bins. It tendered the payment of $15,861.51 into court to be distributed as ordered by the court.

Steelcraft entered into this contract with Commodity Credit Corporation prior to August 10, 1954 and on this date subcontracted with Orville Hewkin for the erection of the bins. Hewkin was obligated to erect the bins, furnish all materials and supplies, except those furnished by Steelcraft and Commodity Credit Corporation. Also on August 10, 1954 , Hewkin "assigned all his right, title and interest" in his contract to the Champaign County Bank and Trust Company, of Urbana , Illinois , and directed Steelcraft to make all payments to him under said contract direct to the bank. The bank advanced at least $10,000, which is unpaid, to Hewkin on the security of the assignment. A copy of the assignment was served upon Steelcraft. Hewkin completed his contract and in April, 1955 was adjudged a bankrupt, Steelcraft withheld the $15,861.51, being the balance due under the contract with Hewkin upon being advised that in addition to the bank's assignment there were four unpaid materialmen, viz:

Joseph T. Clancy .........         $4,371.00

Ellis Gravel Company .....          1,616.75

Jessie Whitehouse ........          3,862.34

Hunter Lumber Company ....            140.46

The bank, the materialmen, the trustee in bankruptcy and the bankrupt, all citizens of Illinois , were made parties defendant. The materialmen have filed answer asserting priority over the bank's assignment. The United States of America intervened in the suit seeking to impress upon the sum withheld its tax liens for delinquent withholding taxes of Hewkin in the amount of $5,397.68 assessed December 2, 1954 for the third quarter of the year 1954, and $3,995.95 for the fourth quarter of the year 1954 assessed March 15, 1955. At the time of the assessments all of the materialmen involved here had delivered their materials, completed their work and presented their bills to Hewkin. Steelcraft kept an agent on the jobs at all times and was aware of the progress of the work and materials furnished.

Clancy and Ellis filed counterclaims against Steelcraft and third-party claims for relief against the Fireman's Fund and Indemnity Company, the surety on the payment bond executed by Steelcraft to the Commodity Credit Corporation. Whitehouse, in substance by his answer, also filed a counterclaim against Steelcraft. Only the counterclaim of Ellis was filed in the name of the United States of America in strict accordance with the Miller Act, 40 U. S. C. A. 270b(b). In substance all the materialmen's claims are based upon the Miller Act and at the trial of the cause were so construed and considered. Rule 15(b) F. R. C. P. See Glens Falls Indemnity Co. v. United States , 9 Cir., 229 Fed. (2d) 370.

The Miller Act is remedial and must be liberally construed to accomplish its purpose. Fleisher Co. v. United States , 311 U. S. 15. Ellis Gravel Company literally complied with the notice required under the Miller Act. Clancy gave notice to Steelcraft within 90 days through the Agricultural Stabilization and Conservation Division of the Department of Agriculture. Whitehouse delivered a copy of his unpaid bill to Orville Hewkin who in turn at his request delivered it to Steelcraft within the required 90 days of the date the material was furnished. Thus the latter two claimants stated accurately the amount claimed and to whom the material was furnished to Steelcraft. This court finds that all of the notices were intended to inform Steelcraft of the unpaid material claims of Hewkin and were sufficient notice to comply with the Miller Act. Fleisher Co. v. United States, supra; Houston Fire & Casualty Ins. Co. v. United States, 5 Cir., 217 Fed. (2d) 727.

All of the answers and claims of the materialmen were filed within one year of the final furnishing of materials which necessarily is within one year of the settlement between Steelcraft and Commodity Credit Corporation. The Hunter Lumber Company filed an answer but failed to appear and make proof of their claim at the trial, and their claim must be disallowed. Steelcraft deducted liquidated damages in accordance with the subcontract due to delayed completion by Hewkin which it paid to Commodity Credit Corporation, leaving a balance due on the contract in the amount of $15,861.51. Neither the government nor any of the defendants have questioned the amount of liquidated damages so paid by Steelcraft.

The government maintains that its tax liens are entitled to priority over the claims of the materialmen whose claims had not been reduced to judgment. A tax lien of the government was fully perfected at the time the assessments were made, 26 U. S. C. A. 6321 (formerly 3671). If the materialmen were opposing the tax liens on the basis of a statutory mechanic's or materialman's lien, the government would have priority. United States v. Kings County Iron Works, 2 Cir., 224 Fed. (2d) 232 [55-2 USTC ¶9536]. United States v. White Bear Brewing Co., 7 Cir., dissenting opinion, 227 Fed. (2d) 359 [55-2 USTC ¶9776], reversed 350 U. S. 1010 [56-1 USTC ¶9440]; Cf. United States v. Saidman, C. A. D. C., 231 Fed. (2d) 503 [56-1 USTC ¶9322]; United States v. Hawkins, 9 Cir., 228 Fed. (2d) 517 [56-1 USTC ¶9143].

The facts in the instant case present a different situation. Steelcraft was the principal on the payment bond executed to the Commodity Credit Corporation with Fireman's Fund Indemnity Company as surety, and is therefore liable for the unpaid material bills as principal upon this bond under the Miller Act. In United States Fidelity and Guaranty Co. v. United States , 10 Cir., 201 Fed. (2d) 118, 121 [53-1 USTC ¶9249], the court said:

"On the date of the execution of the subcontract, the prime contractor had a specific right of ownership in any funds accruing to the subcontractor from the performance of the subcontract. The right to withhold these funds upon default was superior to any other claim against the fund as the property of the subcontractor."

This specific right of ownership has even been held to extend to interest on the sums expended by a surety. Glenn v. American Surety Co., 6 Cir., 160 Fed. (2d) 977 [47-1 USTC ¶9220]. Steelcraft as the principal on the bond had a definite ownership in the amount due Hewkin for a specific amount at all times. Steelcraft retained the ownership of the funds to be paid to Hewkin until the contract was fully performed. This amount was determinable by deducting from the subcontract price the amount which Steelcraft had advanced to Hewkin from time to time as the work progressed. Since Steelcraft is liable under the Miller Act to the materialmen for their unpaid bills it was entitled to retain sufficient funds to reimburse itself, based upon its prior right of ownership which existed from the inception of the subcontract. United States Fidelity and Guaranty Co. v. United States, supra; Glenn v. American Surety Co., supra. See also General Casualty Co. of America v. United States, 5 Cir., 205 Fed. (2d) 753 [53-2 USTC ¶9483]; Karno-Smith Co. v. Maloney, 3 Cir., 112 Fed. (2d) 690 [40-2 USTC ¶9533]; In re Caswell Const. Co., Inc., N. D. N. Y., 13 Fed. (2d) 667 [1 USTC ¶189]; American Fidelity Co. v. Delaney, D. Vt., 114 Fed. Supp. 702 [53-2 USTC ¶9620]; Great American Indemnity Co. v. United States, W. D. La. , 120 Fed. Supp. 445 [54-2 USTC ¶9469]; New York Casualty Co. v. Zwerner, N. D. Ill., E. D., 58 Fed. Supp. 473 [45-1 USTC ¶9140].

The terms of the contract obligated Hewkin to "furnish all materials and supplies," thereby creating an implied condition of the subcontract that the materialmen would be paid. Houston Fire and Casualty Insurance Co. v. E. E. Cloer, 5 Cir., 217 Fed. (2d) 506; United States v. United States Fidelity and Guaranty Co., 2 Cir., 113 Fed. (2d) 888. The materialmen are thus third-party beneficiaries of Steelcraft's specific ownership in the amount due Hewkin derived by and from the date of the subcontract. The government's claim is based upon the failure of Hewkin to pay his taxes and he and his property alone are liable for their payment. See Central Bank v. United States, 345 U. S. 639 [53-1 USTC ¶9408]. Steelcraft is not liable for the payment of Hewkin's taxes to the government. United States v. Crosland Const. Co., 4 Cir., 217 Fed. (2d) 275 [55-1 USTC ¶9112]. See Great American Indemnity Co. v. United States , supra. Since Hewkin was not entitled to receive payment until be complied with his subcontract he had no right of ownership in the amount still due and the lien of the government never attached to this fund. The rights of the government rose no higher than those of the taxpayer whose right to the withheld sum never accrued. Great American Indemnity Co. v. United States, supra; F. H. McGraw & Co. v. Sherman Plastering Co., D. C. Conn., 60 Fed. Supp. 504, affirmed 2 Cir., F. H. McGraw & Co. v. Milcor Steel Co., 149 Fed. (2d) 301, cert. denied 326 U. S. 753. To hold otherwise would impose upon Steelcraft double liability, that is, to the government and the unpaid materialmen. This would be inequitable. See Karno-Smith Co. v. Maloney, 3 Cir., 112 Fed. (2d) 690 [40-2 USTC ¶9533].

The bank contends that its assignment is superior to the claim of the materialmen. Steelcraft acknowledged the assignment but it is obvious that Hewkin thereby intended to assign only his profit to be received under the subcontract. See Mueller v. Northwestern University, 195 Ill. 256. Furthermore, the bank could stand in no better position against Steelcraft than Hewkin, its assignee. Reeve v. Smith, 113 Ill. 47; Angelina County Lumber Co. v. Michigan Cent. R. Co., 252 Ill. App. 32.

The bank does have priority over the tax claim of the government. This is not disputed by the government. The assignment to the bank was executed long before the government's taxes were assessed. By virtue of 26 U. S. C. A. 6323 (formerly 3672) the bank is a purchaser to the extent of the amount it advanced to Hewkin as present consideration for the assignment. National Refining Co. v. United States , 8 Cir., 160 Fed. (2d) 951 [47-1 USTC ¶9221]. Cf. Scovil v. United States , 348 U. S. 218 [55-1 USTC ¶9137]; R. F. Ball Construction Co. v. Jacobs, W. D. Texas, 140 Fed. Supp. 60 [56-1 USTC ¶9514].

This court therefore concludes that Steelcraft is entitled to an order that it be discharged upon the payment of $15,361.51 into this court and the materialmen are entitled to be paid their claims. The balance remaining after the payment of these claims of the materialmen must be paid to the bank. Since this absorbs the entire fund withheld there is nothing to be paid to the government on withholding taxes.

Findings of fact, conclusions of law and final order may be submitted.

 

 

[60-1 USTC ¶9372]The Aetna Casualty and Surety Company, Plaintiff v. The Port of New York Authority and the United States of America , Defendants

U. S. District Court, So. Dist. N. Y., Civ. 136-84, 182 FSupp 671, 3/24/60

[1954 Code Sec. 6323]

Completing surety's priority: Performance bond covering contract: "Retained percentages of payments for work done".--The completing surety of a defaulting contractor had priority over federal tax liens against a fund held by the Port of New York Authority, the other contracting party, on the grounds that it represented "retained percentages of payments for work done", where (1) the surety executed a performance bond covering the contract entered into on the same day, (2) the contractor, eight days thereafter, assigned to the surety all its right, title and interest to all the money due under the contract, and (3) the liens subsequently filed represented claims to employment taxes on wages paid for work done under the contract.

[1954 Code Sec. 6321]

Property subject to lien: Bonus for early completion of contract: Right to withhold for benefit of third persons.--A bonus for early completion of work by a defaulting contractor represented "retained percentages of payments for work done" and was lawfully withheld by the Port of New York Authority under a contract which authorized it to withhold amounts from any payment, final or otherwise, to assure just claims to third persons. Thus, it was not "property" unlawfully withheld from the contractor to which federal tax liens could attach and, as to this portion of the fund, the completing surety also had priority.

[1954 Code Sec. 6321]

Government's claim against surety: Obligation to pay wages v. obligation to pay taxes on wages.--A completing surety of a defaulting contractor was not obligated under its contract to pay the Government's claim for employment taxes due from the contractor on wages paid under the contract. The surety's obligation to pay the wages did not obligate it to pay the taxes which should have been remitted to the Government by the contractor, since a failure to pay taxes is not the same thing as a failure to pay wages.

M. Carl Levine, Morgulas & Foreman, 521 Fifth Avenue , New York 17, N. Y. (Albert Foreman, of counsel), for plaintiff. Sidney Goldstein, 111 Eighth Avenue , New York 11, N. Y., for the Port of New York Authority. S. Hazard Gillespie, Jr., United States Attorney for the Southern District of New York (William Scott Ellis, Assistant United States Attorney, of counsel), for United States .

MCGOHEY, District Judge:

This case involves the question whether Aetna's lien as completing surety of a defaulting contractor has priority over tax liens of the United States against a fund of $67,000 held by the Port of New York Authority . The latter asserts no claim to the money which consists in part of retained percentages of payments certified as earned by the contractor for work done; and in part of the unpaid portion of a bonus concededly due but not paid to the contractor, for early substantial completion of the work called for by the contract.

[Motions for Summary Judgment]

The action was commenced in the New York Supreme Court and removed here by the government. The Port Authority, in its answer, asks that it be directed to pay the $67,000 into this court and that thereupon the action against it be dismissed.

Both Aetna and the United States moved for either complete or partial summary judgment.

Aetna 's motion seeks judgment (a) directing the Authority to pay it the $67,000; (b) dismissing the government's tax lien and claim; or, in the alternative, for partial summary judgment in the sum of $57,381.03 and dismissing the government's tax lien and claim as to that amount.

The government's motion seeks judgment (a) adjudging the tax liens to be superior to the plaintiff's; (b) directing the Authority to pay the government the $67,000; (c) directing Aetna to pay the government the balance, if any, of taxes with respect to which the government has a prior lien, and dismissing the complaint.

The government also moved, alternatively, for the following relief: (a) summary judgment on its first counterclaim for the unpaid portion of the bonus, which amounts to $9,184; (b) summary judgment on each of its second and third counterclaims. These, respectively, seek $8,106.26 for unpaid withholding taxes and interest; and $1,512.71 for unpaid unemployment insurance taxes and interest.

[No Issue as to Material Facts]

The parties agree and I independently find there is no genuine issue as to any of the material facts which I find to be as follows.

In 1954, Ranes Construction Corp., the defaulting contractor, entered into a contract with the Port Authority to construct Hangar No. 11 at New York International Airport . On the same day, Ranes as principal and the plaintiff as surety executed a performance bond covering that contract. Eight days later Ranes assigned to the plaintiff all right, title and interest to all monies due under that contract.

[Default]

On July 7, 1955, all but about $1,000 worth of work on the hangar was completed and, under the terms of the contract as amended in March, 1955, a bonus of $57,400 became due to Ranes. All but $9,184 of the bonus was paid to Ranes. The latter, however, was then unable to meet its financial obligations under the contract. The plaintiff, as surety, was obliged to and did complete the contract, and in doing so expended the sum of $276,910.83. It thereupon made demand on the Port Authority for all monies then due Ranes under the contract and unpaid. These amounted to $157,380.58. The Port Authority, which had received notices of tax liens, paid the plaintiff $90,380.58 on account and withheld $67,000 to cover the tax liens filed by the government during August, 1955 and at various times thereafter.

[Completing Surety v. Assignee]

The government conceded on oral argument that the plaintiff, as completing surety, would be entitled, under prior authorities, to priority as to the retained percentages of payments for work done. This concession did not extend to the unpaid portion of the bonus. The government contended, however, that the rule announced in the earlier cases ¹ has been overruled by R. F. Ball Contracting Co. v. Jacobs. ² That contention is rejected. ³ In the Ball case, the plaintiff did not sue as completing "surety" but as "assignee," a status which it contended, under applicable state law as to assignments and mortgages, constituted it a "mortgagee" under section 3672(a) of the Internal Revenue Code of 1939 and thus entitled to priority. The Supreme Court held the assignment to Ball did not constitute it a "mortgagee" within the meaning of the code provision. The Ball decision, however, left undisturbed the rule announced in the prior cases cited above. Accordingly, on the authority of those cases, I hold that the plaintiff's lien as completing surety has priority over the defendant's liens for taxes against the retained percentages of payments for work done.

[Unpaid Bonus]

The government's contention with respect to the withheld portion of the bonus is that, this "was earned by Ranes, and thus is in a category different from that of the retained percentages" because Article 8 of contract, entitled "Withholding Payments," "applies primarily to retained percentages." Accordingly, the argument proceeds, the unpaid bonus is "property" of Ranes unlawfully withheld, to which the tax liens attached, thus giving them priority over Aetna's lien under decisions such as those in American Radiator Co. v. City of New York