Conveyance by Taxpayer Page2

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[80-2 USTC ¶9807]United States of America v. Louis Kiefer, Administrator of the Estate of Payne Dean; Elizabeth Dean; Richard E. Caserta; John W. Bahre; William Woods, Jr., Trustee; Town of Barkhamsted Tax Collector; Town of Barkhamsted Fire District; Oscar J. Riiska; Gerald J. Heffernan, Commissioner, Connecticut Tax Department

U. S. District Court, Dist. Conn. , Civil No. H-76-256, 8/24/79

[Code Sec. 6323]

Tax liens: Unpaid income and withholding taxes: Attachment of lien to real property: Right of priority.--The District Court granted the government's motion for summary judgment and ordered a foreclosure of the taxpayer's real property upon which federal tax liens had attached. Although the property had passed to the taxpayer's widow at his death, and other parties claimed an interest in the real estate, the court held that the tax liens had arisen because of unpaid taxes due from the taxpayer before he died, and thus the recording of the federal liens served to protect the government's right of priority against all others. In so holding, the court ordered the sale of the residence with the proceeds to be distributed to the parties as their interests appeared.

Cheryl Wattley, Assistant United States Attorney, P. O. Box 1824, New Haven, Conn. for plaintiff. Donald R. Holtman, Kleinman, Steinberg & Lapuk, 99 Pratt St., Hartford, Ct. 06103, for Louis Kiefer, Maurice R. Gersten, Gersten, Butler & Gersten, 234 Pearl St., Hartford, Ct. 06103, for E. Dean, Edward F. Scully, Canton Village, Canton, Ct. 06019, for R. Caserta and J. Bahre, Austin Carey, Jr., Hoppin, Carey & Powell, 266 Pearl St., Hartford, Conn. 06103, for W. Woods, Jr., Patrick E. Power, 65 Elm St., Winsted, Conn. 06098, for Town of Barkhamsted, Thomas C. White, 101 Whiting St., Winstead, Ct. 06098, for Town of Barkhamsted Tax Collector.

RECOMMENDED RULING ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

EAGAN , Magistrate:

Plaintiff, the United States of America , has filed a Motion for Summary Judgment in its favor under Rule 56 of the Federal Rules of Civil Procedure. Plaintiff's complaint is that Payne Dean, deceased as of March 8, 1972, owes income and withholding tax from certain years between 1961 and 1971. Plaintiff demands judgment from the admin istrator of the estate and from all named parties with an interest in the former residence of Payne Dean, as this property is encumbered by federal tax liens for the taxes owed.

Defendants to this action are: Louis Kiefer, present admin istrator of the estate of Payne Dean; Elizabeth Dean, widow of Payne Dean, former joint owner with right of survivorship of the residential real estate in question at the time the delinquent taxes were due, and the former executrix of the estate of Payne Dean; Richard E. Caserta and John Bahre, present owners of the real estate by a quitclaim deed executed by Elizabeth Dean on March 1, 1973; William Woods, Jr., assignee of a mortgage placed on the real estate on October 19, 1962; Town of Barkhamsted tax collector, for any interest claimed in the real estate; Town of Barkhamsted Fire District, for any interest claimed in the real estate; Oscar J. Riiska, for any interest claimed in the real estate; Gerald J. Heffernan, Commissioner, Connecticut Tax Department, for any interest claimed in the real estate.

The question before the court is whether the Motion for Summary Judgment shall be granted. Rule 56(c) provides that the judgment sought shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. ". . . [F]ormal denials or general allegations which do not show the facts in detail and with precision are insufficient to prevent the award of summary judgment." Engl v. Aetna Life Ins. Co., 139 F. 2d 469, 473 (2d Cir. 1943). See also, Dressler v. MV Sandpiper, 331 F. 2d 130, 133 (2d Cir. 1964); and Applegate v. Top Associates, Inc., 425 F. 2d 92, 96 (2d Cir. 1970). In addition, assessments for federal taxes are prima facie evidence of the fact that taxes are due; the assessments are presumptively correct, and the burden is upon the taxpayer or his representative to prove that the assessments are incorrect. United States v. Rindskopf, 105 U. S. 418 (1881); Helvering v. Taylor [35-1 USTC ¶9044], 293 U. S. 507, 515 (1935); United States v. Janis [76-2 USTC ¶16,229], 428 U. S. 433 (1976); United States v. Lease [65-2 USTC ¶9478], 346 F. 2d 696 (2d Cir. 1965); Bernuth v. Commissioner of Internal Revenue [73-1 USTC ¶9132], 470 F. 2d 710, 714 (2d Cir. 1972). Mere general denials and allegations do not suffice to meet the taxpayer's burden of proof.

In this instance, the plaintiff's complaint was answered by Louis Kiefer stating that the estate is insolvent, that the estate has not yet been probated, and generally denying that the tax liabilities are due and owing from him either personally or in his capacity as admin istrator. The Town of Barkhamsted Fire District answered claiming an interest in the proceeding and alleging a prior claim in right in the real estate. William H. Woods, Jr. answered claiming an interest in the proceeding and alleging a prior claim in right in the real estate in the amount of the unpaid balance and interest on the note and mortgage. Richard E. Caserta and John Bahre answered generally claiming prior interest to all other parties.

The estate is liable for taxes due, Conn. Gen. Stat. §45-228, 229, but the admin istrator is not personally liable. Eno v. Cornish, Kirby 296 (1787). In addition to the estate liability, §7043 of the Internal Revenue Code of 1954 permits enforcement of tax liens by sale of the taxpayer's property and distributions of the proceeds of the sale depending on the interests of the United States and other parties. The property interests of the taxpayer subject to such enforcement are determined by state law. Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509, 513 (1960); Slodov v. United States [78-1 USTC ¶9447], 436 U. S. 238, 257 (1978). Under Connecticut law, joint tenancy in real property, even with the right of survivorship is subject to levy and execution. New Haven Trolley and Bus Employees Credit Union v. Hill, 145 Conn. 332, 336 (1958); Conn. Gen. Stat. §52-495. "The transfer of property subsequent to the attachment of the lien does not affect the lien, for 'it is of the very nature and essence of a lien, that no matter into whose hands the property goes, it passes cum onere . . ..'" United States v. Bess [58-2 USTC ¶9595], 357 U. S. 51, 57 (1958), quoting, Burton v. Smith, 13 Pet. 464, 483. See also, Michigan v. United States [43-1 USTC ¶9225], 317 U. S. 338, 340 (1943).

In 1970 United States tax assessments were made for the period between 1961 and 1967, and tax liens recorded with the Town Clerk of Barkhamsted, Connecticut , against Payne Dean. At that time, Payne Dean and Elizabeth Dean were joint owners with the right of survivorship of their residence in Barkhamsted. On March 8, 1972 , Payne Dean died, and Elizabeth Dean received full ownership along with the lien which was attached to the undivided half interest of Payne Dean. March 1, 1973 , Elizabeth Dean quitclaimed the property to Richard E. Caserta and John Bahre. The lien, being attached to the property, passed also. Further assessments against Payne Dean were made in 1974 and 1975 for taxes due in 1970 and 1971, and notice of this tax lien was filed with the Town Clerk of Barkhamsted, Connecticut , in 1975. The 1970 notice was refiled in January and March of 1976. The liens arose upon assessment of taxes due, and the recording of the liens served to protect the government's right of priority as against subsequent mortgages, pledges, purchase or judgment liens. I. R. C. §6323(a). Enforcement of a tax lien by levy or by proceeding in court may take place for a period of six years from the date the assessment was made. I. R. C. §6502. The original assessment having been made on July 31, 1970 , and this action having begun on June 28, 1976 , the statute of limitations has not expired.

In all of the documents submitted to the court, no genuine issue as to any material fact has emerged. The answering parties only made formal denials and general allegations. Since there is no genuine issue as to any material fact, and the moving party is entitled to a judgment as a matter of law, this court grants the motion for summary judgment and orders foreclosure by public sale of the former residence of Payne Dean in Barkhamsted, Connecticut, with the proceeds of the sale being paid to the Clerk of the Court pending a determination of the proper distribution of such proceeds to the various parties as their interest may appear.

 

 

[40-2 USTC ¶9493]United States of America, Plaintiff, v. John T. Woodside and Mrs. Lou Woodside, his wife; City of Greenville, S.C., a corporation, and B.F. Dillard, as its Clerk and Treasurer; Greenville County, S.C., a corporation, and Rob ert N. Smith, as its Treasurer; Citizens Bank of Taylors, S.C., a corporation, and W.A. Hopkins, as Receiver thereof; Peoples State Bank of South Carolina, a corporation, and Wm. Elliott and Rob ert Gage, as Receivers thereof; Biltright Building Company, a corporation; Easley Cotton Mills, a corporation, and F.W. Halsey, Defendants.

District Court of the United States of America , Western District of South Carolina . Decree of Foreclosure and Sale., Eq. 538., Filed May 10, 1940 .

Lien for taxes: Priority.--In a suit to enforce and foreclose a lien in favor of the United States on account of taxes and interest for 1920, 1921, 1925, and 1926, the Court holds that the Government has a valid and subsisting lien against the property described herein, that the same be sold in the manner described, and that the proceeds be applied to the payment of liens in the priority to be subsequently determined.

O.H. Doyle, U.S. Attorney, and E.P. Riley and T.A. Wofford, Assistant U.S. Attorneys, all of Greenville, S.C., for plaintiff. Wilton H. Earle and A.C. Mann, both of Greenville S.C. , for certain of the defendants.

LUMPKIN, District Judge:

This is a suit in equity, commenced on the 6th day of December, 1937, by the filing of a bill to enforce and foreclose a lien in favor of the United States of America, on account of an assessment of income taxes and interest against the defendant, John T. Woodside, for the years 1920, 1921, 1925, and 1926, in the aggregate amount of $52,182.63, with interest thereon at one per centum per month from May 20, 1930, to August 30, 1935, and thereafter at six per centum per annum, to date of judgment. An amended bill was filed on July 22, 1939 , but the allegations are the same as those contained in the original bill, with the exception that additional real estate is included in the description of the property which the government seeks to sell and have the proceeds of sale applied to its lien debt.

From affidavit of E.P. Riley, Assistant United States Attorney, it appears that all parties defendant are properly before this court, and that the main parties in interest, John T. Woodside and Lou C. Woodside, failed to file an answer and are therefore in default. It appears from the bill of complaint that on June 25, 1932, while the lien of the United States was in force and effect, and after filing notice thereof, the defendant, John T. Woodside, by deed, conveyed the real estate described in the bill of complaint to his wife, Mrs. Lou C. Woodside; that the real estate described in the amended bill of complaint was the subject of litigation, which was concluded subsequent to the date upon which the original bill was filed, and the purpose of the amended bill was to include this lot in the description of real estate to be sold; now, therefore, on motion of O.H. Doyle, United States Attorney for the Western District of South Carolina,

IT IS ORDERED, ADJUDGED AND DECREED:

(1) That the United States of America has a valid and subsisting lien against all of the real and personal property of the defendant John T. Woodside, and has a right to foreclose said lien and have all of the property hereinafter more particularly described sold and the proceeds of sale applied to the payment of liens against the same in the order of their priority.

(2) That Honorable Reuben Gosnell, United States Marshal for the Western District of South Carolina, do sell, at public outcry, to the highest bidder, for cash, in front of the Greenville County Court House, at Greenville, South Carolina, on Monday, June 3, 1940, being salesday in June, 1940, during the usual hours of public sales, commencing at 11 o'clock, a.m., on said date, the lots or tracts of land hereinafter described, in separate parcels, and that the said United States Marshal do advertise the said sale and the terms thereof by publication in the Greenville News, a daily newspaper published at Greenville, South Carolina, once a week for three weeks next preceding the date of said sale, a description of the said lands to be so advertised and sold being as follows, to wit:

1. All that certain tract of land in State of South Carolina, County of Greenville, Oaklawn Township, on the west side of Augusta Road, containing 57 acres, more or less, being all of the following described tract of land (less, however, a five acre tract of land heretofore conveyed to the Board of Trustees for Ellen Woodside High School, viz.: Beginning at an iron pin on the west side of Augusta Road, said pin being at the southern corner of the Ellen B.C Woodside tract, and running north along Augusta Road, 15 chains to a point on the west side of Augusta Road; thence almost due west 17 chains to a point near a spring, thence after a slight off-set to the southeast N 851/2 W 16.84 chains, thence northeast .95 chains; thence S 52 W 5 chains, thence S 541/2 W 10 chains; thence S 88 E 7.8 chains, thence S 60 E 34 chains, thence N 69 E 12 chains to the beginning corner;

2. All that certain lot of land in the state of South Carolina, Greenville County, in the city of Greenville, known and designated on a plat of land of Poinsett Realty Co., as lot No. 79, said lot being described by courses and distances as follows: Beginning at a point on Capers Street, 285.5 feet from Crescent Avenue, at corner of lot No. 78, thence S 84 19 W 175 feet to iron pin, thence S 5 41 E 70 feet to corner of lot No. 80; thence along line of lot No. 80 N 84 19 E 175 feet to Capers Street, thence N 5 41 W 70 feet to the beginning corner. This being the same lot conveyed to John T. Woodside by Poinsett Realty Company, by deed dated March 3, 1920, recorded in R.M.C. Office for Greenville County in book 64, page 323;

3. All those certain tracts of land in State of South Carolina, Greenville County, on the Anderson Road, about four miles from the city of Greenville, known and designated on plat of property of Mabel McB. Charles, made by C.H. Millard, November, 1922, as Tracts Nos. 6, 7, 8, 9. 10, 11, 12, and 13, which tracts have such metes and bounds as are sawn on the said plat; also, Tracts Nos. 4 and 5 on the above mentioned plat; and also, a tract of 1.73 acres conveyed to John T. Woodside by Harry Bates by deed dated April 21, 1923, recorded in book 83, page 10, said tract having courses and distances as follows: Beginning at a stake in the Anderson Road, at intersection of new cut road leading from New Anderson Road to Old Anderson Road; thence with center of New Anderson Road N 38 34 E 282.5 feet to stake in center of road; thence N 33 53 W 168 feet to railroad spike in center of Old Anderson Road; thence with center of Old Anderson Road S 44 50 W 433.2 feet to intersection of new cut road and Old Anderson Road; thence with center of new cut road S 50 46 E 207.8 feet to the beginning corner. All of the above tracts taken together from one tract of 55.49 acres, more or less;

4. That certain lot of land in Greenville County, South Carolina, just inside the city limits of Greenville, on Judges Alley, having the following courses and distances: Beginning at an iron pin on east side of Judges Alley, at corner of Griffin property, thence along line of Griffin property S 47 10 E 335.6 feet to iron pin on line of Poinsett Realty Company property; thence along said line N 5 14 W 100 feet to iron pin, comer of Nesbitt property; thence along Nesbitt line N 47 16 W 271 feet to iron pin on east side of Judges Alley; thence along said alley S 34 30 W 67.3 feet to beginning. This is the same lot conveyed to John T. Woodside by C.Q. West, executor, by deed dated July, 1922, recorded in R.M.C. Office for Greenville County, in book 74, page 552;

5. That certain lot of land in Greenville County, South Carolina, in the city of Greenville, on Palmetto Avenue, known and designated as lot No. 49 on pint recorded in R.M.C. Office for Greenville County, South Carolina; said lot having a frontage of 50 feet on southwest side of Palmetto Avenue, and being 246 feet from intersection of McKay Street and Palmetto Avenue. This is one of the lots conveyed to John T. Woodside by West End Land and Improvement Co., by deed dated December 29, 1919, and recorded in R.M.C. Office for Greenville County, in book 15, page 393;

6. That certain lot of land in Oaklawn Township, Greenville County, South Carolina, containing 6.75 acres, more or less, and known as the "Hillory Shorter" tract, being triangular in shape, and bounded by lands heretofore conveyed by John T. Woodside to Woodville Investment Company.

7. All that certain piece, parcel or lot of land, lying and being situate on the west side of Capers Street, in the City of Greenville, S.C., County and State aforesaid, and being known and designated upon a pint of Crescent Terrace as Lot No, 78, said plat being recorded in the office of R.M.C. for Greenville County, in Plat Book E, page 137, being one of the lots conveyed to me by Poinsett Realty Co,, by deed bearing date of September 20, 1919, said lot beginning at a point upon Capers Street, 210 feet from Crescent Avenue, and runs back along the rear lines of lots Nos. 29, 28, 27, and 26, S 84.40 W 270.6 feet to a strip of land belonging to the Poinsett Realty Co,; thence along said strip of land S 5.16 E 76.8 feet to corner; thence N 85 E 96 feet to stone on corner of lot No. 79; thence continuing N 84.19 E 175 feet to Capers Street; thence along Capers Street N 5.41 W 75.5 feet to beginning corner.

(3) That the United States Marshal, conducting the sale, require the highest bidder on each of said parcels or lots of land to immediately make a cash deposit of five per cent of the bid, as earnest money or evidence of good faith, such deposit to be applied on the bid should there be a compliance of same, and in the event of noncompliance, to be forfeited and paid over to the plaintiff and retained by it as liquidated damages; and the premises as to which there is a failure of compliance with the bid, within ten days from the date of sale, shall be re-advertised and re-sold, upon the same terms, at such bidder's risk, on the next ensuing salesday, or some convenient salesday thereafter, to be designated by the plaintiff's attorney. If the person making the last highest bid on any lot or parcel of said land fails to make the required deposit immediately at the time of the acceptance of his bid, then the said premises shall be immediately re-sold, at such bidder's risk, on the same salesday or some subsequent salesday, at the option of plaintiff's attorney. The provision for making deposit as evidence of good faith shall not apply to the plaintiff or its agents. The purchaser will pay for documentary stamps.

(4) That upon the terms of the sale being fully complied with, the said United States Marshall do execute and deliver to the purchasers deeds, fee simple in form, to the lots or parcels so purchased, and that he thereupon pay over the entire proceeds of said sale to W. D. White, Clerk of the United States District for the Western District of South Carolina, to be held in the Registry of this Court until the further order of the court establishing the rank of the claims as between the City of Greenville, the County of Greenville, the State of South Carolina, and the United States of America.

(5) That said action be and remain open on the calendar of the court for such other and further orders as may be proper for the final disposition of all issues involved in the suit, it being particularly understood that all answering defendants will be heard with reference to their claims before the proceeds are finally disbursed.

 

 

[61-2 USTC ¶9526]Hochschwender, Plaintiff v. Dorlo Corp'n, Defendant

N. Y. Supreme Court, Nassau County , Part II. 144 N. Y. L. J., No. 8, 7/15/60

[1954 Code Sec. 6323]

Tax lien: Validity against third party: Mortgage of corporation controlled by delinquent taxpayer.--The court refused to ignore the corporate entity of a corporation controlled by the delinquent taxpayer and to enforce the Government's tax lien against a mortgage executed by the corporation on property formerly owned by the delinquent taxpayer and deeded to the corporation. The mortgagees were held to have a valid lien which had priority over the government's tax lien. There was no showing of fraud, misrepresentation, or illegality which is necessary to pierce the corporate veil and subject its property to the Government's tax lien which is against the delinquent taxpayer.

Davies, Hardy & Schenck, 2 Broadway, New York 4, N. Y. (John W. Burke, 2 Broadway, New York 4, N. Y., of counsel), for plaintiffs. Patrick J. Mahoney, 600 Old Country Road, Garden City, N. Y., for Dorlo Corp., Lawrence A. Hochschwender, and Dorothy Hochschwender. Cornelius W. Wickersham, Jr., United States Attorney, 271 Washington St., Brooklyn, N. Y. (William A. Dubrowski, Assistant United States Attorney, Brooklyn, N. Y., of counsel), for United States. Zalkin & Cohen, 19 Rector St., New York, N. Y. (Leonard Zalkin, 19 Rector St., New York, N. Y., of counsel), for New York Trust Co. Cleary, Gottlieb, Steen & Hamilton, 52 Wall St., New York 5, N. Y. (Arthur Elfenbien, 52 Wall St., New York 5, N. Y., of counsel), for Colonial Trust Co.

BRENNAN, Judge:

In this action to foreclose a mortgage made on March 31, 1958 , the plaintiffs and the defendant Lawrence A. Hochschwender (hereinafter referred to as " Lawrence ") are brothers and sisters. On January 2, 1952 , the plaintiffs, the defendant Lawrence and his mother, Helen Hochschwender, owned interests in Flatbush Chevrolet Sales Corporation (Flatbush) and four other corporations. On that day the said parties entered into an agreement whereby the defendant acquired his mother's and the plaintiffs' interests in Flatbush for $150,000, of which $120,000 was to be paid in deferred installments. The remaining corporations were to be dissolved and the properties held by them conveyed to the individual parties to the agreement in accordance with their respective interests.

Thereafter, on the 18th of March, 1954, the plaintiffs and the defendant Lawrence, now vested with title to three parcels of real estate in Brooklyn , contracted to sell said parcels to the defendant Dorlo Corporation (Dorlo), a domestic corporation organized in 1944 and whose sole stockholder was and is the defendant Lawrence. The price was $300,225 payable as follows: $160,000 to the plaintiffs in cash, $60,000 by waiver by Lawrence of his personal share of the purchase price, $50,000 by the purchaser (Dorlo) giving a second purchase money mortgage in that amount to the plaintiffs and $30,225 by the said purchaser satisfying a then existing mortgage held by Flatbush Saving Bank.

On March 25, 1954 , the said individuals, by deed recorded on the following day, conveyed the said parcels to Dorlo. On the same day Dorlo gave back to the plaintiffs a mortgage covering said parcels, among others, which mortgage was recorded on March 30, 1954 , and which recited an indebtedness of $50,000. Installment payments were provided for and the unpaid mortgage balance was stated to be due on March 25, 1964 . The good faith of the plaintiffs in this transaction is not subject to question.

Dorlo ran into difficulties in 1957 and Lawrence advised his brothers and sisters (the plaintiffs) that his corporation could obtain a mortgage loan on the Brooklyn properties then in Dorlo's name, provided the 1954 mortgage which they held were satisfied. He offered a Dorlo mortgage on property at No. 185 Tanglewood Crossing in the village of Lawrence , Long Island , in exchange for the satisfaction of the 1954 mortgage. The Tanglewood Crossing property had been acquired by Dorlo and December 4, 1953 , for a price of $100,000 in a transaction to which reference will be made below. At the time of the proposal there was still due to the plaintiffs on the 1954 mortgage the sum of $41,554.35.

The mortgagees delivered a certificate of satisfaction of the 1954 mortgage covering the properties in Brooklyn (which certificate bore the date March 22, 1958 , and was recorded April 1, 1958 ) and received the mortgage note of Dorlo secured by its mortgage on the Tanglewood Crossing property for $41,554.35. The original (1954) mortgage called for quarterly installments of $937.50 applicable to interest at 41/2 per cent, and reduction of principal; the new mortgage called for like installments and like interest. The unpaid balance of the original mortgage was due March 25, 1964 ; the unpaid balance of the new mortgage was to become due on March 31, 1964 . There can be no question as to the adequacy of the consideration for the mortgage; nor was it made with intent, actual or presumed, to hinder, delay or defraud creditors of either Dorlo or Lawrence; nor, was it a gratuitous conveyance in any sense.

While these transactions were taking place within the family circle, other events were taking place without it to which reference will now be made.

The internal revenue service on December 31, 1956, made assessments of taxes against the defendant Lawrence as transferee of Flatbush Chevrolet for the years 1949, 1950, 1951 and 1953, the unpaid amounts of which, including interest, aggregated $40,149.11 as of March 3, 1960. A federal tax lien against him was duly filed on August 9, 1957 (this was in a greater amount at the time of filing, but has been reduced by payments and a partial abatement).

The contention of the United States is that its lien attached to the Tanglewood Crossing property of Lawrence A. Hochschwender when Dorlo deeded it to him on April 1, 1958 , at which time the plaintiffs' substituted mortgage had not yet been recorded. It also argues that if this is not true, its lien attached to the property on August 9, 1957 , in any event because Dorlo was in fact the alter ego of Lawrence and that the corporate entity should be accordingly disregarded.

These contentions must be evaluated by a close scrutiny of the time factors involved. The United States filed its lien against Lawrence Hochschwender on August 9, 1957 . On and before this date the plaintiffs had a valid mortgage lien on the Brooklyn properties of Dorlo, which would have had priority over any government lien filed against Dorlo even if the corporate veil were pierced at that time and Dorlo were held to be an alter ego of Lawrence Hochschwender. On March 31, 1958 , plaintiffs accepted, as an accommodation to their brother Lawrence, a substituted mortgage on the Tanglewood property in place of the mortgage on the Brooklyn properties. Dorlo was then the record owner of both the Tanglewood and the Brooklyn properties, and the record revealed no liens by the government on any of the Dorlo properties. Consequently, at that moment, plaintiffs held a wholly valid mortgage lien against the Tanglewood property of Dorlo. Their mortgage was not recorded until April 7, 1958 , one week after execution, a normal interval for recording. It was not until May 29, 1958, two months after this mortgage, that there was recorded a deed purporting to transfer the Long Island property from Dorlo to Lawrence Hochschwender individually, which deed was dated April 1, 1958, a convenient date indeed, one day following the mortgage, and some six days before it was recorded. This late recording of the purported deed would suggest the possibility that the deed was not executed and delivered on April 1, but in fact back dated as an afterthought of Lawrence Hochschwender. No factual determination of this possibility need be made, however. Recording of the deed raises a presumption of delivery, but the presumption is effective only as of the date of recording, not the date of execution (Maryland Casualty Co. v. Stern, 5 Misc. 2d 423). Moreover, the deed itself was ineffective to convey an unqualified fee simple. It was a full covenant and warranty deed which purported to transfer the property free and clear of mortgage liens. Dorlo had notice of the plaintiffs' mortgage. Lawrence Hochscwender had similar notice. Dorlo had no power to transfer the property other than subject to that mortgage (People v. Douglass, 217 App. Div. 328). Therefore, even if the deed were executed and delivered on April 1, it was nevertheless fraudulent as to the plaintiffs and could not transfer title to Lawrence in any manner other than subject to plaintiffs' mortgage. The most that Lawrence received by this deed was the equity of redemption ("A greater estate of interest does not pass by any grant or conveyance than the grantor possessed or could lawfully convey at the time of the delivery of the deed * * *"; Real Property Law, sec. 245).

The federal tax lien was not then valid against the plaintiff mortgagees (Title 26, U. S. C., 6323). It could only attach to the equity of redemption held by Lawrence Hochschwender. The United States contends, however, that the corporate entity of Dorlo should be disregarded as a mere alter ego of Lawrence Hochschwender, and that the Tanglewood property should be considered as being in Lawrence Hochschwender even before August 9, 1957 . While the evidence adduced at the trial indicates that Lawrence dominated the Dorlo corporation, this in itself does not require that its separate status be disregarded. It can safely be assumed that the plaintiffs would never have consented to the substitution of the Tanglewood property for their valid mortgage on the Brooklyn properties, if at that time Lawrence Hochschwender were the record owner of Tanglewood. The government lien was already filed against Lawrence , and the substitution would have constituted an outright gift to the tax gatherer, a somewhat unlikely eventuality. Plaintiff relied on the record title, and they had every right to do so. They relied on the distinction between the corporate and individual entities, a perfectly proper course of conduct.

The corporate entity may be disregarded where it is used "as a cloak or cover for fraud or illegality" (Jenkins v. Moyse, 254 N. Y. 319, 324). But there is not even a whisper of fraud or illegality in this case. In Bartle v. Home Owners Cooperative (309 N. Y. 103, 106), the court said: "Generally speaking, the doctrine of 'piercing the corporate veil' is invoked 'to prevent fraud or to achieve equity' (International Aircraft Trading Co., Inc. v. Manufacturers Trust Co., 297 N. Y. 285, 292; see Halsted v. Globe Ind. Co., 258 N. Y. 176, 179; Jenkins v. Moyse, 254 N. Y. 319, 324; Quaid v. Ratkowsky, 183 App. Div. 428, aff'd 224 N. Y. 624). But in the instant case there has been neither fraud, misrepresentation nor illegality."

In that case specific findings were made that the defendant owned all the shares of the corporation, controlled it; that the outward indicia of the two separate corporations was maintained during the period when the creditors extended credit; that the creditors were in no way misled: and that there was no fraud. The identical findings are made here.

Thus, the plaintiffs' mortgage is a valid lien which takes priority over the lien of the United States .

Defendant New York Trust Company is in the unenviable position of having given to Lawrence Hochschwender and his wife an unsecured loan in the amount of $150,000 on March 21, 1958 , ten days prior to the mortgage transaction it now challenges. It too seeks to pierce the corporate veil, treat the Tanglewood property as Lawrence Hochschwender's rather than Dorlo's and thereafter attack it as a fraudulent conveyance. For reasons already noted, the corporate entity will not be disregarded, but even if it were, the conveyance could not be set aside as fraudulent, since, as has been noted, it was given for a good and fair consideration (cf. County Federal Savings & Loan Ass'n v. Walsh Rights Corp'n, 187 N. Y. S. 2d 722 n. o. r.).

The plaintiffs are hereby awarded judgment foreclosing the mortgage. All motions upon which decision was reserved at the trial are hereby resolved accordingly. This constitutes the decision of the court required by section 440 of the Civil Practice Act. Settle judgment on notice to all parties who have appeared in the action.

 

 

[64-1 USTC ¶9384]United States of America, Plaintiff v. Stanley Crews; Callie Crews; Vergennes State Bank of Vergennes, Illinois; Du Quoin State Bank; William Cochran, also known as William A. Cochran; Dorothy Cochran, also known as Dorothy Kathleen Cochran, also known as Kathleen Cochran; State of Illinois, Defendants

U. S. District Court, East. Dist. Ill., Civil No. 4430, 230 FSupp 268, 3/13/64

[1954 Code Secs. 6321-6323]

Tax liens: Priority of creditors and liens: Illinois tax lien: Conveyance to third party: Foreclosure action.--Where the taxpayers received notice of 100% penalty assessments against them as responsible officers of a corporation, and notice of lien for the assessment was thereafter filed, the lien of the United States attached to property owned by the taxpayers which they subsequently conveyed. The United States had priority over the defendants, who purchased the property after the lien of the United States was perfected, over a bank which obtained its interest subsequent to perfection of the lien of the United States, and over the lien of the State of Illinois which was not perfected until long after lien of the United States was perfected.

Carl W. Feickert, United States Attorney, Room 327 Post Office Bldg., East St. Louis, Ill., for plaintiff. Gordon Franklin, Aikaman Bldg., Marion, Ill., for S. Crews; F. Mark Miller, Brookings Bldg., Du Quoin, Ill., for Du Quoin State Bank; W. Troy Barrett, Assistant Attorney General, 518 South Illinois Ave., Carbondale, Ill., for State of Illinois, defendants.

JUERGENS, District Judge:

The United States of America brings this action to foreclose its tax lien on certain real property owned by defendants Stanley Crews and Callie Crews, husband and wife, who reside in Jackson County, Illinois. Jurisdiction is founded on Title 28 United States Code, Sections 1340 and 1345, and Section 7402(a) of the Internal Revenue Code of 1954. Vergennes State Bank maintains an office in Vergennes, Jackson County, Illinois. Du Quoin State Bank maintains an office in Du Quoin, Perry County, Illinois. William Cochran, also known as William A. Cochran, and Dorothy Cochran, also known as Dorothy Kathleen Cochran, also known as Kathleen Cochran, husband and wife (hereinafter known as Cochrans), reside in Jackson County, Illinois. All of the above defendants reside within the Eastern District of Illinois. Defendant State of Illinois is located in Springfield , Illinois .

[Facts]

During the year 1957 the Cochrans were responsible officers for the C. and M. Coal Company of Vergennes , Illinois .

On May 9, 1958, the District Director of Internal Revenue, pursuant to Section 6672 of the Internal Revenue Code of 1954, made 100 per cent penalty assessments of taxes with penalties and interest against defendant Cochrans as the responsible officers of the C. and M. Coal Company and on May 20, 1958, duly gave notice of the assessment, stating the amount and demanding payment. Notice of lien for the assessment was filed in the Office of the Recorder of Deeds in Jackson County, Illinois on July 9, 1958.

On May 9, 1958, the date of the assessment, the Cochrans were the owners of the following described property:

A plot of land commencing measurements 20 rods due West of the Northwest corner of the Southwest Quarter (S. W. 1/4) of the Northwest Quarter (N. W. 1/4) of Section 21, Township 7 South, Range 2 West of the 3rd Principal Meridian, running thence due South 8 Rods 8 feet, thence due West 17 rods 14 feet to the place of beginning, and containing 1 acre, more or less, Except 60 feet off the East side thereof as shown by deed dated November 22, 1946, and recorded in book 168 at page 165, also Except 100 feet off the West side thereof as shown by deed dated November 6, 1947, and recorded in book 175 at page 114, situated in Jackson County, Illinois.

On or about August 20, 1958, the Cochrans conveyed the above-described real estate to defendants Stanley and Callie Crews.

Defendant Du Quoin State Bank filed its answer, asserting, inter alia, that it has no interest or lien in the real estate described in the complaint. The Cochrans failed to answer or otherwise plead in the case, and default judgment was entered against them on March 15, 1963. In reply to request for admissions, defendants Stanley Crews and Callie Crews asserted that on or about July 9, 1958, the property in dispute was owned by the Cochrans and on or about August 20, 1958, they purchased the real estate from the Cochrans. The Vergennes State Bank filed its answer, denying, inter alis, that the notice given by filing of the lien was effective as to them for the reason that the withholding of tax by the Cochrans was not willful. The Vergennes State Bank has not further pleaded, nor has it answered request for admissions proffered to it concerning the existence of a mortgage allegedly held by defendant Vergennes State Bank.

The State of Illinois filed its answer and cross-complaint, asserting that there is due and owing to the Department of Revenue of the State of Illinois the sum of $202.12 for Retailers' Occupation Tax. In the answer, which is verified, the State of Illinois asserts that the Retailers' Occupation Tax due became a lien on January 13, 1959, upon the filing of notices of the tax due in the office of the Circuit Clerk and ex-officio Recorder of Deeds of Jackson County, Illinois.

The United States has filed its motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, Title 28 U. S. C., on the ground that there is no genuine issue or question of fact and that the pleadings, together with the affidavits attached, show that the plaintiff is entitled to summary judgment and the relief prayed in the amended complaint as a matter of law.

[Date Lien Arises]

Under the provisions of Section 6321 of the Internal Revenue Code of 1954, a lien inures to the United States upon all property and rights to property, whether real or personal, belonging to the person liable to pay any tax who neglects or refuses to pay the same after demand. Section 6322 provides that unless another date is specifically fixed by law, the lien imposed by Section 6321 shall arise at the time the assessment is made and continue until the liability for the amount assessed is satisfied or becomes unenforceable by reason of lapse of time. Section 6323 provides in pertinent parts as follows:

"(a) Invalidity of lien without notice.--Except as otherwise provided in subsection (c), the lien imposed by section 6321 shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the Secretary or his delegate--

"(1) Under state or territorial laws.--In the office designated by the law of the State or Territory in which the property subject to the lien is situated, whenever the State or Territory has by law designated an office within the State or Territory for the filing of such notice; or

* * *"

Under Illinois law recording or filing notice of lien on or conveyances of real estate with the Circuit Clerk and Recorder of Deeds for the county in which the property is located is sufficient notice. The filing of the tax lien by the United States in the Office of the Recorder of Deeds of Jackson County, Illinois, on July 9, 1958 , was sufficient to perfect the lien as against all persons, including purchasers and mortgagees for value.

The Court need not consider whether the lien was valid prior to this date or not, since on the date the notice of tax lien was recorded, the Cochrans were the parties against whom the tax had been assessed and were also the owners of the real estate involved and the answer of the Du Quoin State Bank is in effect a disclaimer and shows that the mortgage to it has been satisfied. Defendants Stanley and Callie Crews acquired the property by purchase subsequent to the date the lien was perfected. The Vergennes State Bank likewise obtained its interest (if any interest it has) subsequent to perfection of the lien. The lien of the State of Illinois for unpaid Retailers' Occupational Tax was not perfected until long after the lien of the United States was perfected. The persons against whom the tax was assessed have not appeared or presented any defense, and default judgment has been entered against them.

The Government is entitled to judgment against the taxpayers and is entitled to a priority over defendants Stanley Crews, Callie Crews, Vergennes State Bank of Vergennes, Illinois, Du Quoin State Bank and State of Illinois , since all of the claims of the purchasers and mortgagees and the State of Illinois are subordinate to the prior filed federal tax lien.

[Judgment of the Court]

The Court finds that defendants William Cochran, also known as William A. Cochran, and Dorothy Cochran, also known as Dorothy Kathleen Cochran, also known as Kathleen Cochran, are liable to the United States for unpaid taxes with penalties and interest assessed against them in the amount of $1,820.89 plus interest from May 9, 1958, and that the United States has a valid and subsisting lien, for taxes with penalties and interest in said amount plus interest, on the real property hereinabove described and further finds that the lien of the United States is prior and superior to any liens, claims and interests of the defendants herein, and each of them, on said property and that the plaintiff's lien is foreclosed and that the real property hereinabove described be sold by the proper officer of this Court and that the distribution of the proceeds of such sale be made to the United States in an amount sufficient to satisfy the lien of the United States on said property and liability of defendants William Cochran, also known as William A. Cochran, and Dorothy Cochran, also known as Dorothy Kathleen Cochran, also known as Kathleen Cochran, to the United States for unpaid taxes with penalties and assessed interest, plus interest as provided by law, and that plaintiff be granted its costs in this matter. The Court further finds that the lien of the State of Illinois is subordinate to the right of Stanley and Callie Crews and that plaintiff's motion for summary judgment be and the same is hereby allowed.

The above and foregoing shall be considered findings of fact and conclusions of law.

Parties to settle the order.

 

 

[54-2 USTC ¶9486] United States of America , Appellant v. Fidelity & Deposit Company of Maryland et al., Appellee

(CA-5), In the United States Court of Appeals for the Fifth Circuit, No. 14604, 214 F2d 565, July 6, 1954

Appeal from the United States District Court for the Southern District of Mississippi.

Lien for taxes: Property conveyed in fraud of creditors.--In a suit by a bonding company to set aside a conveyance from the taxpayer to his wife as being in fraud of creditors, the United States intervened and asserted priority for tax liens which arose and were recorded subsequent to the conveyance. After the conveyance and before the suit, the wife had mortgaged the property. The court held that the lien of the bonding company, acquired under state law when it filed suit, was superior to that of the United States , because when the tax liens were filed taxpayer had already parted with all his interest in the property and the United States was therefore an unsecured creditor when the bonding company acquired its lien. The bona fide mortgagee also took precedence over the United States , since the mortgage was executed when the wife had title and before the conveyance to her was set aside as fraudulent. Sec. 3466 of the Revised Statutes cannot be applied to give an unsecured claim of the United States priority over a claim secured by a lien.

Carolyn R. Just and Ellis N. Slack, Special Assistants to Attorney General, and H. Brian Holland, Assistant Attorney General, all of Washington, D. C., and Jesse W. Shanks, Assistant United States Attorney, Jackson, Miss., for appellant. William E. Suddath, Jr., James L. Spencer, W. H. Watkins, Sr., and Forrest B. Jackson, all of Jackson, Miss., for appellee.

Before BORAH, and RUSSELL, Circuit Judges, and DAWKINS, District Judge.

BORAH, Circuit Judge:

Fidelity & Deposit Company of Maryland, hereinafter called the bonding company, brought this action in the United States District Court for the Southern District of Mississippi against E. E. Lovell and Mrs. Lavinia B. Lovell, his wife, seeking a judgment against Lovell, a contractor whom it had bonded, and seeking to set aside a deed (for his one-half interest in the homestead) from Lovell to his wife, dated November 19, 1948. Also named as a defendant was H. V. Watkins, trustee for the Deposit Guaranty Bank & Trust Company of Jackson , Mississippi , to which on February 10, 1950 , the Lovells had mortgaged the homestead under deed of trust. By subsequent amendments to the complaint, first the Collector of Internal Revenue, and then in his stead the United States , was made a defendant. The complaint as amended broadened the original demands of plaintiff, and in a corresponding prayer for relief the court was additionally asked to set aside a transfer by Lovell to his wife of certain shares of stock in the Flowood Corporation and to grant unto plaintiff a personal judgment against Mrs. Lovell for the value of the stock if she had disposed of the same as well as for all sums of money transferred to, given to, or deposited by Lovell for the benefit of his wife. Subsequently, and upon motion of the plaintiff, the United States was dismissed as a party defendant without prejudice. Thereafter, the United States was permitted to intervene and file an answer and cross-claim, wherein it asserted that its tax liens against Lovell were prior and superior to any lien asserted by plaintiff, the trustee and the bank. It also alleged that the conveyance from Lovell to his wife of November 19, 1948 , was made without consideration, was fraudulent as to creditors and should be subjected to the payment of the claim for unpaid taxes owing to the United States . The Deposit Guaranty Bank & Trust Company thereupon intervened to protect its claim to certain shares of Flowood Corporation stock pledged on the personal note of Mrs. Lovell.

[District Court's Judgment]

Issue was joined and the cause came on for trial [52-2 USTC ¶9550]. At its end and after considering the evidence, the District Court found and held in substance the following: (1) that the conveyance by E. E. Lovell to his wife of his undivided one-half interest in the homestead was fraudulently made as to the Fidelity & Deposit Company of Maryland and the United States of America as creditors of E. E. Lovell, and that the same should be set aside and said property sold subject to the payment of his debts; (2) that the Deposit Guaranty Bank & Trust Company, as trustee for R. V. Powers Foundation, had a good and valid deed of trust on the homestead of E. E. Lovell and his wife to secure an indebtedness of $4,000 still owed to it; that, subject to such indebtedness, the bonding company, as institutor of this suit, has (exclusive of the homestead exemption) the right to priority of payment from the proceeds of E. E. Lovell's one-half interest which had been fraudulently conveyed; and that as to the homestead exemption, the first three thousand dollars which was not subject to execution to satisfy the bonding company's judgment, the United States was entitled to be first paid; (3) that the conveyance by E. E. Lovell to his wife of one hundred shares of Flowood stock was fraudulently made as to the creditors of E. E. Lovell, and should be set aside, and said property should be subjected to the payment of his debts; that there was owing to the Deposit Guaranty Bank & Trust Company the sum of $1,150, secured by a pledge of said stock, and that subject to such secured indebtedness the bonding company, as institutor of this suit, has the right of priority of payment from the proceeds of the stock; (4) that E. E. Lovell fraudulently transferred to his wife various sums of money aggregating $5,000, which transfers should be set aside in favor of the bonding company, as creditor of E. E. Lovell; and (5) that E. E. Lovell was indebted to the bonding company in the sum of $43,219.83, for which amount it entered judgment in favor of the bonding company; and that E. E. Lovell was indebted to the United States for unpaid taxes, as claimed, in the amount of $8,955.12 together with interest and the court entered judgment in favor of the United States for the full amount.

From that part of the judgment awarding priority in payment out of the property involved to the bonding company over the debts due the United States for unpaid taxes, and from that part of the judgment holding the debt of $4,000 due Deposit Guaranty Bank & Trust Company, secured by deed of trust dated February 10, 1950, is entitled to priority in payment over tax claims of the United States secured by liens which had arisen and been duly recorded prior to execution of the deed of trust, the United States has appealed.

[Tax Liens v. Lien of Bonding Co.]

The first of three questions presented on this appeal is whether the District Court erred in holding that the lien of the bonding company under the laws of the State of Mississippi is superior to tax liens of the United States which arose and were duly recorded prior to the institution of the suit on which the lien of the bonding company was based. Insisting that this question must be answered in the affirmative the Government argues that the federal tax liens here involved arose and were duly recorded before the bonding company acquired its lien under Mississippi law ¹ as institutor of this suit. That while the tax liens of the United States arose and were recorded after E. E. Lovell had fraudulently conveyed to his wife the property here involved, the Government, although it did not then have a statutory lien for its taxes, was as much a creditor of E. E. Lovell as was the bonding company at the time the conveyances were made and thus clearly is within the protection of Section 265 of the Mississippi Code. Under that section the fraudulent conveyances were "clearly and utterly void" as to creditors and there is no authority either in the Mississippi Code or in the decisions of the Mississippi Supreme Court to prevent the federal tax liens from attaching to the property thus transferred at the time the liens arose. In any event and regardless of whether the fraudulent transfers here involved be considered "clearly and utterly void" as declared by the statute, or merely voidable at the option of creditors as held by the court below, any rights of the bonding company were wholly derivative, and since the tax liens of the United States attached also to any after acquired property they attached to any property or rights to property derived through the taxpayer after the liens arose. Finally it is argued that there is no provision of federal law which would warrant recognizing the lien of the bonding company as superior to the tax liens of the United States .

The right of the United States priority of payment of debts due it does not stand on any sovereign prerogative, but is exclusively founded upon the actual provisions of its statutes. Appellant concedes that the bonding company upon the filing of its bill on September 20, 1950 , acquired a lien under Section 127 of the Mississippi Code against the property fraudulently transferred by the taxpayer to his wife. However, and by virtue of Section 3670 of the Internal Revenue Code, ² it insists that the tax liens of the United States which arose and had been duly recorded prior to the filing of the bill were superior in right to the lien of the bonding company.

Section 3670 provides in pertinent part as follows: "If any person liable to pay any tax neglects or refuses to pay the same on demand, the amount * * * shall be a lien in favor of the United States upon all property and rights of property, whether real or personal, belonging to such person." (Italics supplied.) Section 3671 of the Internal Revenue Code provides that the lien under Section 3670 "shall arise at the time the assessment list was received by the collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time."

[ Mississippi Law]

It is plain from the language of the statute that the tax liens of the United States attached to all property and rights to property of the taxpayer at the time the several assessment lists were received by the Collector of Internal Revenue. It is equally plain, and the Government readily concedes the fact, that the federal tax liens arose and were recorded long after the taxpayer had conveyed to his wife the property here involved. It thus affirmatively appears that the taxpayer had parted with all right, title and interest to the property in question before the tax liens of the United States arose. ³ Under Mississippi law, Lovell not only had no interest in the land from and after the execution of the deed to his wife but he had no reversionary ⁴ interest of any kind therein and he was estopped ⁵ to assert or acquire any such interest. Under Section 265 of the Mississippi Code it has consistently been held that a fraudulent conveyance is void "only" against creditors but valid as between the grantor and grantee. Or, as the Supreme Court of Mississippi said ⁶ in quoting approvingly from a Massachusetts case it "is good between the parties and void against creditors only, or to speak accurately, is voidable by creditors at their election."

When the tax liens were filed Lovell had parted with all interest in the property which he had conveyed to his wife and he never thereafter acquired any interest therein. Indeed the statute prohibited him from doing so. Consequently appellant did not then acquire a lien on property in which the taxpayer had no interest but only acquired a right to set aside the conveyance from Lovell to his wife as a fraudulent conveyance. Its position was that of an ordinary creditor seeking to recover an unsecured claim. It was an unsecured creditor just as appellee was when it filed its original bill of complaint on September 20, 1950 .

Appellee filed its bill to subject the property involved to the payment of its debt more than a year before the court permitted appellant to intervene in that proceeding and assert a lien upon the property and also the rights of a creditor. And by virtue of Section 1327 of the Mississippi Code ⁷ appellee obtained a lien upon the property as of the date of the filing of the bill which would antedate and take preference over the counterclaim filed by the appellant. In Kline v. Sims, 149 Miss. 154, 114 So. 871, 873, the Supreme Court of Mississippi in construing Section 1327, supra, said:

"We think the creditor who proceeds under this statute is entitled to the benefit of his diligence, and that, under the language of the statute, he has a lien upon the property sold on this sequestration. He is not required to bring suit on behalf of all the creditors, but may sue for his own demand and get the benefit of his diligence. Creditors who will not act, or who are not diligent in asserting their demands, are not entitled to participate equally with the man who is diligent, and who has incurred the risk and expense of proceeding to attack a fraudulent conveyance. If other creditors intervene in the suit, they may, by so doing, take their places in line with creditors according to the date of their proceedings, but they are not entitled to share in the proceeds of the first creditor's diligence and activities, and such creditor is entitled to have his claim first paid. If other creditors desire, they may attack, or sue out writs of sequestration, or take any other appropriate action; but they must do so at their own risk, and they are not entitled to participate in the activities and diligence of the creditor who first takes action."

[Priority of Mortgage]

Appellant's second point relates to the claimed error on the part of the District Court in holding that the debt due the Deposit Guaranty Bank & Trust Company, secured by a deed of trust on the real property here involved, is entitled to a priority of payment out of proceeds from the sale of the property over those taxes due the United States secured by tax liens which arose and had been recorded prior to execution of the deed of trust to the bank. ⁸

During the year 1947 E. E. Lovell and his wife acquired the property in question at a cost of $14,525, of which $6,525 was paid in cash and the unpaid balance of $8,000 was secured by a deed of trust on the property in favor of the First (Capital) National Bank of Jackson , Mississippi . After Lovell had encountered financial difficulties and after he had conveyed his one-half interest in the property to his wife it became necessary because of a threatened foreclosure of the deed of trust to refinance this obligation which by that time had been reduced to approximately $6,000. Accordingly, on February 10, 1950 , Lovell and his wife executed a new deed of trust on the property in favor of the Deposit Guaranty Bank & Trust Company in the amount of $6,000 and this instrument was recorded on February 13, 1950 . The proceeds of the new loan, at least in material part, were used to pay off the previous deed of trust to First National Bank.

In the meantime, and prior to the execution of the deed of trust to Deposit Guaranty Bank & Trust Company, the Collector had on March 28, 1949, filed notice of lien convering assessments of withholding tax and Federal Insurance Contributions Act taxes, together with penalties and interest thereon, for the second, third, and fourth quarters of 1948 in the aggregate amount of $5,823.67; and had, on April 28, 1949, filed notice of lien covering the original assessment of Federal Employment Tax Act, penalty and interest for 1948 in the amount of $235.95. At the time this action was brought the Lovells were indebted to the Deposit Guaranty Bank & Trust Company in the amount of $4,000 together with interest thereon at the rate of 51/% per annum from the tenth day of February 1952 until paid.

The record standing thus, the district judge, without passing upon or deciding the relative rights of the Deposit Guaranty Bank & Trust Company under its deed of trust and of the United States under its prior recorded tax liens, held that "the Deposit Guaranty Bank, so far as the lien on this property is concerned * * * was subrogated to the First National, and succeeded to its rights; and the Deposit Guaranty Bank and Trust Company (as Trustee for R. V. Powers Foundation) has against said property a good and valid lien, which comes ahead of the claims of all of the other parties litigant."

We think the court erred in applying the doctrine of subrogation but nevertheless reached the right conclusion in holding that the mortgage of Deposit Guaranty Bank & Trust Company was superior to the liens for taxes. The Deposit Guaranty Bank did not acquire nor did it in any manner succeed to the rights of First National Bank under the 1947 deed of trust to it. On the contrary, the Deposit Guaranty Bank entered into a new and separate loan agreement with Lovell and his wife and it took a new trust deed in its favor as security for repayment of its loan. The lien of First National was paid off and discharged, it was not transferred, and the Deposit Guaranty Bank did not thereby succeed to the lien rights of First National. However, there is and can be no doubt that the bank did acquire a good and valid mortgage lien of its own upon property the title to which was vested in Mrs. Lovell at the time she executed the deed of trust. Prior to the time of the institution of suit by the Fidelity & Deposit Company of Maryland there was no record or actual suggestion to the Deposit Guaranty Bank and Trust Company that the conveyance from Lovell to his wife was fraudulent. The Deposit Guaranty Bank was a bona fide mortgagee of Mr. Lovell because it was without notice, either actual or constructive, of the fraudulent nature of the conveyance by which she secured her title. We conceive the Mississippi law ⁹ to be that a bona fide purchaser or mortgagee from a grantee who secures title by a conveyance which is afterwards set aside because in fraud of creditors is not charged with the fraud of an antecedent grantor in the chain of title. Until the fraud is established and the instrument set aside a lien recorded against such antecedent grantor in title is not notice to the subsequent bona fide purchaser. Consequently, the mortgage of the bank was superior to the liens for taxes.

[Unsecured Claims of U. S.]

Appellant's third and final point that the District Court erred in holding that the United States is not entitled under Section 3466 of the Revised Statutes ¹⁰ to priority in payment of its taxes out of the proceeds of the property her involved is not well taken and hardly merits discussion. Our recent opinion in U. S. v. Atlantic Municipal Corporation, 212 Fed. (2d) 709, (decided May 11, 1954 [54-1 USTC ¶9392]) is dispositive of this issue. There, in speaking of Section 3466 we said: "This statute applies only as against unsecured debts, that is, debts not secured by a specific and perfected lien. It has never been, we think it will never be, applied as it is sought to be applied here, to accord payment to a debt due the United States in preference to a claim secured by a lien which is prior in time and superior in law to the lien of the United States securing the debt for which preferential payment is sought."

For the reasons stated the judgment ¹¹ of the District Court is

AFFIRMED.