Fact-Finding Page4

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Against this background, Youngstown , as garnisher-creditor, appeals. It attacks the priority awards to the United States , to the laborers and to the mechanics and materialmen lienholders. There are no cross appeals. For purposes of analytic convenience, we take up the claims in the order in which Youngstown attacks them, but for reasons set forth below, we reach and decide only the priority rights between the materialman lien claimant, Lucey Products, Inc. (Lucey), and Youngstown . On all other claims, we reverse and remand to the district court for re-allocation of priorities among the remaining combatants.

The Wage Claimants and the Claims of the United States

These claimants are grouped together because their right to the priorities assigned by the district court is attacked on the common ground that both failed at trial to submit adequate proof of their asserted liens.

At the outset it is best to declare what is not in dispute on the present appeal. Youngstown does not, for example, seriously challenge the superiority of a federal tax lien arising under Sections 6321 ⁴ and 6322, ⁵ Internal Revenue Code of 1954, over a state garnishment lien ⁶ where the federal tax lien is filed before the garnishment lien is reduced to judgment. ⁷ United States v. Liverpool and London Insurance Co., 1955, [55-1 USTC ¶9136] 348 U. S. 215, 75 S. Ct. 247, 99 L. Ed. 268. Nor is the priority award to the wage claimants challenged apart from an alleged absence of substantiating proof. What Youngstown does argue is that despite the fact that the government pleaded the timely fulfillment of the recording requirements of 28 U. S. C. A. §6323, it offered no proof to that effect at trial. Neither did the wage claimants offer proof that their liens were perfected. Since the burden of proving such facts rested with both the government and the wage claimants, Worley v. United States, 9 Cir. 1965, [65-1 USTC ¶9160] 340 F. 2d 500; United States v. Hartsell, 6 Cir. 1958, [59-1 USTC ¶9162] 261 F. 2d 593, and since no evidence was forthcoming, Youngstown argues that the district court's priority award to the United States and to the wage claimants was in error.

[Proof of Filing]

In reply the United States directs our attention to the Federal Rules of Civil Procedure, particularly Rule 8(d), and to the fact that the government's complaint properly alleged assessment, notice and demand on August 18, 1965 , served that day on Gould. The complaint also stated that the filing was consummated or effectuated in the office of the Clerk of the County Court of Midland County on August 23, 1965 . Since these allegations contained in the government's complaint were not denied by Youngstown in a responsive pleading, the government argues that they are deemed admitted by Rule 8(d), and that the necessity for proof was thereby obviated.

Rule 8(d) of the Federal Rules of Civil Procedure prescribes that:

"Averments in a pleading to which a responsive pleading is required, other than those as to the amount of damage, are admitted when not denied in the responsive pleading. Averments in a pleading to which no responsive pleading is required or permitted shall be taken as denied or avoided."

The Rule is clear that the effect to be given to an undenied allegation in a pleading is dependent on whether or not the pleading is one to which a responsive pleading is required. But the government observes in its brief that none of the Federal Rules specify when a responsive pleading is required, with perhaps the sole exception of Rule 7(a) which limits the quantity of pleadings to be permitted:

"There shall be a complaint and an answer; and there shall be a reply to a counterclaim denominated as such; an answer to a cross-claim, if the answer contains a cross-claim; a third-party complaint, if leave is given under Rule 14 to summon a person who was not an original party; and there shall be a third party answer, if a third-party complaint is served. No other pleading shall be allowed, except that the court may order a reply to an answer or a third-party answer."

Despite its apparent clarity, nothing is said in Rule 7(a) or any other Rule that we have been able to find that indicates the responses allowed or required to a complaint in intervention in an interpleader suit. On the other hand, the government urges us to regard a complaint in intervention as analogous to a conventional complaint or to a counter-claim. Such analogy would, of course, require a response to all the averments in the government's complaint, and absent denials of the alleged recordations, such fact would be deemed admitted. Youngstown on its part, however, urges that the government's failure to prove the lien formalities is of lethal proportions, and merits reversal of the district court's judgment.

We think neither approach is suited to the case at bar. In the first place, the cases cited by Youngstown are cases where the issues were of substantive proportions and therefore subject to testimony on both sides. In those cases issues were given testimonial evaluation, while in the case now before us the formalities of lien perfection were never made the object of trial court inquiry. Moreover, the cases cited by Youngstown did not involve peripheral or adjectival facts. In those circumstances there was no chance that the party with the burden of responsive pleading would fail to understand that such essential facts were in issue. On the other hand, in the case at bar the government and wage claimants could have believed that their liens were not under attack because the answer of Youngstown to their several complaints contained no such challenge.

The government's position is likewise open to question. The Federal Rules of Civil Procedure are, for the most part, coherent, explicit and synoptically cover the areas of their concern. They are cogently and logically expressed. It may be that Rule 8(d) does not demand a denial of the facts involved in an intervention because it may not require a responsive pleading. Certainly, the government's analogy does not render the contrary proposition so compelling that we must decide this issue in its favor. Rather we do not essay this task of construction because it is unnecessary to a decision of the case at bar.

Although the general rule is that the failure to put in evidence all the proof necessary for a judgment is fatal error, there are occasions when the innocent, unwary and the justifiably unknowing litigants are entitled to some judicial benevolence. Such benevolence is backed by both statutory sanction and by decisions of the United States Supreme Court. In the words of Justice Black in Hormel v. Helvering, 1941, [41-1 USTC ¶9322] 312 U. S. 552, 61 S. Ct. 719, 85 L. Ed. 1037, 1041:

"Rules of practice and procedure are devised to promote the ends of justice, not to defeat them. A rigid and undeviating judicially declared practice under which courts of review would invariably and under all circumstances decline to consider all questions which had not previously been specifically urged would be out of harmony with this policy. Orderly rules of procedure do not require sacrifice of the rules of fundamental justice. . . ."

In the case at bar the wage claimants and the government had every reasonable right to assume that the basic and formal facts of their liens were not in denial. They were justifiably lulled into believing that only the legal consequences flowing from such facts were in dispute or in contention. The Federal Rules of Civil Procedure generally perceptive and endowed with prescience are normally quite explicit, but here we find them ambiguous or inconclusive in respect to the necessity of filing a responsive pleading to a plea in intervention. Such ambiguity, in conjunction with reasonable expectations as to what facts were and were not in issue, persuades us that the rigid enforcement of procedural technicalities would be inappropriate in the present instance. O'Brien v. Willys Motors, Inc., 6 Cir. 1967, 385 F. 2d 163; Frieze v. West American Ins. Co., 8 Cir. 1951, 190 F. 2d 381.

A trial is an exploration of facts, not a battle of wits. Its modus operandi stresses the paramountcy of fair notice pleading and fact finding unencumbered with an excess of detail. A litigant who was unable to find any authority demanding proof is just as disadvantaged by being uninformed as by being misinformed by the law. Woods v. Stewart, 5 Cir. 1948, 171 F. 2d 544. Therefore, while the trial court should have required that the wage claimants and the government present proof of their liens and their proper recordation, we think the circumstances require a remand to allow the submission of such proof. Such a procedure is well sanctioned and within our discretion. McKissick v. U. S. , 5 Cir. 1967, 379 F. 2d 754. As was said in Morgan v. Garris, D. C. Cir. 1962, 307 F. 2d 179, 181:

". . . Although we 'cannot hold a trial court to be in error in failing to decide an issue not put before it in a civil action' * * * it does not follow that we can never decide such an issue or remand a case to the [trial court] with direction to decide it.' Stouper v. Jones, 109 U. S. App. D. C. 106, 109, 284 F. 2d 240, 243 (concurring opinion of Judge Bazelon. The Supreme Court has said, 'we have power not only to correct error in the judgment under review but to make such disposition of the case as justice requires.' Patterson v. Alabama , 294 U. S. 600, 607, 55 S. Ct. 575, 79 L. Ed. 1082. This Court also has this power 28 U. S. C. §2106."

In our era of liberality in pleading where trials are no longer esoteric games guided by archaic rules, courts must insure that procedural niceties are not used to deprive a litigant of his day in court. As Justice Black noted in Surowitz v. Hilton Hotels Corp., 1966, 383 U. S. 363, 86 S. Ct. 845, 15 L. Ed. 2d 807, 814:

"The basic purpose of the Federal Rules is to admin ister justice through fair trials. . . . These rules were designed in large part to get away from some of the old procedural booby traps which commonlaw pleaders could set to prevent unsophisticated litigants from ever having their day in court. If rules of procedure work as they should in an honest and fair judicial system, they not only permit, but should as nearly as possible guarantee that bona fide complaints be carried to an adjudication on the merits."

This spirit which animates the Federal Rules of Civil Procedure has equal applicability to 28 U. S. C. A. §2106. To reverse and render with respect to the wage claimants and the government in the case at bar would perpetuate a "clear miscarriage of justice." Hartley & Parker, Inc. v. Florida Beverage Corporation, 5 Cir. 1965, 348 F. 2d 161, 164. It would ignore the fact that both the government and the wage claimants could well have relied on Youngstown 's failure to deny the asserted lien claims; it would ignore the uncertain state of the applicable pleading rules; and it would be a complete disregard of the fact that the trial court was not notified of or confronted with this issue. The purpose of remanding is "not a right to afford a defeated litigant another day in court because he thinks that if he were given the opportunity to bing his case again upon a different theory he might prevail." Miller v. Avrom, D. C. Cir. 1967, 384 F. 2d 319, 323. Rather its purpose is to insure that substantial justice is done, and we resort to it here only because the equities so require.

The Mechanics and Materialmen Lien Claimants

Apart from the Midland Bank, ⁸ whose priority is not here under appellate attack, ⁹ we have cornucopian facts regarding the nature and attempted perfection of materialmen's liens only with regard to Lucey. The other mechanics and materialmen lien claimants offered no proof of their liens, nor did they file briefs with this Court. On remand, however, they can present their panoply of facts respecting the existence and proper perfection of these liens for the same reasons already denominated as applicable to the government and wage claimants. We find the case of Capital Oil & Gas Co. v. Casey, Tex. Civ. App. 1927, 299 S. W. 466 (no writ), relied on by Youngstown, as no bar to this procedure. Casey involved the sufficiency of pleadings under Texas law. It therefore has no relevance to the case at bar which is governed in procedural matters by the Federal Rules. Coastal Airlines v. Dockery, 8 Cir. 1950, 180 F. 2d 874, 877. In fact, the holding of Capital v. Casey, supra, is alien to our notice concept of pleading, and must, therefore, be disregarded. Conley v. Gibson, 1957, 355 U. S. 41, 78 S. Ct. 99, 2 L. Ed. 2d 80.

The claims of Lucey Products, Inc., may now be considered in full. Lucey alleged and proved that it furnished materials to Gould on the Fuller lease in June of 1965, in aid of Gould's drilling efforts for Texaco. Notice of claim of $11,755.94, based on materials and services furnished to Gould was allegedly mailed to Texaco August 30, 1965 , with liens filed in the county in which the drilling site was located, on October 14, 1965 . As previously noted, Youngstown had its writ of garnishment served on Texaco on July 7, 1965 .

[State Law Controls]

Youngstown states that Lucey's mechanic's and materialman's lien was not choate, since its claim was not reduced to judgment. Youngstown 's claim, on the other hand, had been reduced to judgment as of November 4, 1966 , and so, argues Youngstown , takes precedence over the Lucey claim. Youngstown cites United States v. Acri, 1955, [55-1 USTC ¶9138] 348 U. S. 211, 75 S. Ct. 239, 99 L. Ed. 264; Ulhorn v. Owens. S. D. Tex. 1962, 211 F. Supp. 798; First National Bank of Lubbock v. Jenkins, Civ. App. Tex. 1961, 350 S. W. 2d 52 (no writ); and United States v. Miller, Civ. App. Tex. 1960, 331 S. W. 2d 436 (writ ref'd, n.r.e.), cert. denied, 364 U. S. 880, 81 S. Ct. 168, 5 L. Ed. 2d 102, in support of its claim to a superior lien. However, these cases relate to hierarchical problems of priority between a federal tax lien and state created liens. The case at bar, on the other hand, except for the government's lien for employment taxes, presents only problems of positioning liens whose order of priority as well as existence is directed solely by state law. Erie R. Co. v. Tompkins, 1938, 304 U. S. 65, 58 S. Ct. 817, 82 L. Ed. 1188. Youngstown 's cases are therefore inapplicable to the contest between Youngstown and Lucey. In considering who is to prevail under Texas law between a garnisher who has reduced his claim to judgment and the holder of a mechanic's lien, we turn first to the controlling Texas statutes. Lucey's claim to a mechanic's and materialman's lien is asserted under Tex. Rev. Civ. Stat. Ann. Art. 5473, 5474, and 5476. Art. 5473 provides that:

"Any person * * * materialman * * * or mechanic, who shall, under contract, express or implied, with the owner of any land * * * or the owner of any gas pipe line or oil pipe line or the owner of any oil or gas pipe line right-of-way, * * * perform labor, furnish or haul material, machinery or supplies used in digging, drilling, torpedoing, operating, completing, maintaining or repairing any such * * * oil or gas pipe line, shall have a lien on the whole of such * * * oil pipe line * * *, including the right-of-way for same * * * and upon the materials and supplies so furnished or hauled, and upon said * * * oil or gas pipe line * * * for which the same are furnished or hauled, and upon all of the other * * * pipe line and right-of-way therefor, for which said material and supplies were furnished or hauled or labor performed. * * *"

Art. 5474 then confers rights on a materialman such as Lucey who furnishes supplies to a contractor such as Gould when such supplies are used in connection with a contract covering items detailed in Art. 5473:

"Any person, corporation, firm, association, partnership or materialman who shall furnish or haul such machinery, material or supplies to a contractor or subcontractor, or any person who shall perform such labor under a subcontract with a contractor, or who as an artisan or day laborer in the employ of such contractor or subcontractor shall perform any such labor, shall have a lien upon all such property or interest described in the preceding article, including right-of-way, for which said material and supplies were furnished or hauled and labor performed, in the same manner and to the same extent as the original contractor, for the amount due him for material furnished or for such hauling or labor performed."

It must be conceded that these statutes by themselves do not explicitly provide that a materialman's lien may be affixed to an account receivable owing by a garnishee (Texaco) to a debtor (Gould), nor do they provide that such liens take precedence over a writ of garnishment if the materials were furnished before the writ of garnishment issued. But these matters were both conclusively settled by the Texas Court of Civil Appeals in Crutcher, Rolfs, Cummings, Inc. et al. v. Big Three Welding Equipment Co., Inc., Tex. Civ. App. 1949, 224 S. W. 2d 884, reversed on other grounds, Big Three Welding Equipment Co., Inc. v. Crutcher, Rolfs, Cummings, Inc., et al., Tex. 1950, 229 S. W. 2d 600. In that case the debtor, an independent contractor, entered into a contract which obligated him to do various things in connection with a pipe line. In the fulfillment of this agreement with the pipe line company, the debtor became obligated to several materialmen, and they were eventually impleaded in a suit brought by another creditor who had caused a writ of garnishment to issue against the owner of the pipe line. The Court of Civil Appeals therefore had to decide priorities among creditors in a context almost identical with the fact situation in the case at bar. The result was as follows:

"We hold that Art. 5473 does apply here, and that 'these appellants' acquired mechanics' and materialmen's liens under Art. 5473 to secure their claims. The effect of this holding must be to hold that the garnisher did not acquire a garnishment lien which was enforcible as against the mechanics' and materialmen's liens acquired by 'these appellants' in virtue of Art. 5473. Whether or not Article 5466, which provides that funds subjected to mechanics' and materialmen's liens shall not be garnished by other creditors 'to the prejudice of such sub-contractors, mechanics, laborers or materialmen,' is here made expressly applicable by the terms of Art. 5479, we need not determine. For it is not disputed that the services and material for which the liens were sought were furnished and performed before the writ of garnishment was ever issued. And it is well settled that mechanics' and materialmen's liens relate back to the time when the work was performed or the material furnished. Trammell v. Mount, 68 Tex. 210, 4 S. W. 377, 379, 2 Am. St. Rep. 479; 29 Tex. Jur. 558 et seq."

In the case at bar, the materials furnished to Gould by Lucey were all delivered prior to July 7, 1965, when Youngstown caused a writ of garnishment to be issued against Texaco. Since it is not disputed that Lucey complied with the filing and notice requirements of Art. 5476a and 5476c, Lucey had a properly perfected lien which related back to a time prior to the issuance of Youngstown 's writ of garnishment. As decided by the Crutcher case, such a lien is prior in time and superior in right to a writ of garnishment issued after the materials are delivered.

This order of priorities is not altered by the fact that the acts of perfection required of the materialmen occurred after the writ of garnishment was issued. The same sequence existed in Crutcher, supra, but that case indicated that the perfection of a lien does not determine its inceptivity. Recording statutes in this instance are not lien creative, but lien corroborative. Their purpose is to avoid the pell-mell of racing to the courthouse by giving to parties a period of time during which liens can be perfected. Thus in the recent case of Trane Company v. Wortham, Tex. Civ. App. 1968, 428 S. W. 2d 417, 419 (no writ), the Texas Court of Civil Appeals noted:

"It is a rule of long standing that the mechanic's and materialman's lien statutes of this state will be liberally construed for the purpose of protecting laborers and materialmen. It is also well established that it is not the registration required by the law, but the law itself, which gives a mechanic or materialman a lien upon the property improved by the labor or by use of the materials by reason of which a lien is asserted. The filing of the affidavit required by Article 5453, V.A.C.S., does not create a lien on the property, but fixes and secures upon it an existing lien. University Savings and Loan Ass'n v. Security Lumber Co., 423 S. W. 2d 287 ( Tex. Sup. 1968)."

Despite this clear pronouncement, Youngstown urges that a mechanic's and materialman's lien is "inchoate" until reduced to judgment, and therefore inferior to a writ of garnishment upon which a judgment has already been rendered. As noted earlier, however, Youngstown 's cases on this point involve the question of priority between federal and state liens, not, as in the case at bar, priority between two liens both of state origin. We find no authority for the proposition that the concept of choateness affects the hegemony of the state-created liens here under scrutiny. Rather it is clear that the federal statutes involved in the cases which appellant has relied on do "not purport to affect the time at which local liens (are) deemed to arise or to become choate . . ." United States v. Pioneer American Ins. Co., 1963, [63-2 USTC ¶9532] 374 U. S. 84, 83 S. Ct. 1951, 10 L. Ed. 2d 770, 775. This is a matter purely of state law. We are convinced that the Crutcher case controls on the facts before us. The result is not changed by William J. Burns International Detective Agency v. General Electric Supply Co., Tex. Civ. App. 1967, 413 S. W. 2d 775 (no writ). That case was authority only for the proposition that the perfection of a mechanic's and materialman's lien must be undertaken by the one who initially furnished the materials or performed the services, and not by that person's assignee. It is true that in considering the motion for rehearing, the court in Burns suggested that a garnisher might prevail over the holder of a mechanic's and materialman's lien even if such lien were filed first. But such a suggestion, besides being merely dicta, appears to be directed to the assignee of the materialman, not to the materialman himself. The Burns case is thus not in point. ¹⁰

Finally, in valediction, Youngstown urges that Lucey was parsimonious and niggardly in its description of the oil leasehold here involved, and therefore failed to demonstrate that its claims were covered by Art. 5473. Youngstown relies on Continental Supply Co. v. Gillespie, Tex. Civ. App. 1925, 269 S. W. 859 (no writ) for the proposition that property attached under authority of a mechanic's and materialman's lien statute must be specifically described. We find no substance to this allegation. A comparison of the lien affidavit found to be inadequate by the court in Gillespie and the affidavit filed by Lucey in the case at bar reveals a substantial difference. In Gillespie, the only description of the land referred to in plaintiff's affidavit was as follows:

"That the said drill pipe material was . . . to be used in developing for oil, and producing oil from, certain land, premises and leasehold of land in what is known as the Markham Oil Field, in Matagorda County, Tex., the description of which land and mineral lease thereon is not known to affiant." (emphasis added)

In the case at bar, on the other hand, the lien affidavit filed by Lucey refers to an oil producing leasehold estate in Scurry and Kent Counties, Texas, and pinpoints those leaseholds in a most precise manner:

"Lease dated November 18, 1948 , from P. L. Fuller, W. M. Fuller and Andrew P. Fuller, Lessors, recorded in Volume 50, Page 239, Oil and Gas Lease Records, Scurry County , Texas , and in Volume 51, Page 530, Deed Records of Kent County, Texas, insofar as said lease covers Section 498, Block 97, H & T C RR Co."

Such description speaks for itself. We therefore find no basis for Youngstown 's allegation that Lucey's claim to a mechanic's and materialman's lien fails for want of specificity.

But Youngstown claims that Lucey's lien must fail for still another reason. Gillespie is cited for the further proposition that Lucey failed to establish the status of its debtor as that of a "contractor" within the meaning of Art. 5474. We find, however, that the record before us is not bare on this point as it was in Gillespie. Here, unlike Gillespie, supra, the record contains ample proof that Gould utilized materials furnished to it by Lucey in furtherance of Gould's contract with Texaco. This contract and Gould's assignment to Lucey of its claim against Texaco were both introduced into evidence. These documents established beyond question that Gould was a "contractor" within the meaning of Art. 5474. On such a state of the record there is no danger, as there was in Gillespie, that "Statutory liens will . . . be extended by implication to embrace matters beyond the plain terms of the statute." Continental Supply Co. v. Gillespie, Tex. Civ. App. 1925, 269 S. W. 859, 860 (no writ). The integrity of the Texas statute is not here in jeopardy.

[Decision]

In view of the above considerations, we reverse and remand to the district court with directions to proceed in a manner consistent with this opinion.

¹ Ten of the wage claimants were awarded the individual sums claimed; seven were awarded a lesser amount; two received nothing. On this appeal the seventeen recipients of awards have notified this Court that the amounts involved do not justify the expense of filing a brief or presenting arguments as appellees, and therefore we have no written argument on behalf of the wage claimants.

² This amount included an award of $288.96 to Midland National Bank. Although the Bank was grouped with the materialmen lienholders, it actually was entitled to priority because of a perfected assignment of a portion of the interpleaded fund.

Among the materialmen, seven claimants received the amount of their claims. Midland Bank received a reduced amount. Appellee Lucey Products was awarded $5,284.02 on a claim totaling $11,755.94. The seven claimants first mentioned have submitted no briefs on appeal. Four have so notified the clerk giving as a reason the amounts and expense involved. A fifth, E. L. Farmer & Co., has notified the Court that it does not desire to be a party to this appeal and that it disclaims any interest in the deposited fund. No expression has been noted from two of this group.

³ The United States ' claim as a federal tax lienholder was based on Gould's unpaid federal employment taxes for the second quarter of 1965. The $3,077.92 awarded the government was only in partial satisfaction of its total approved claim of $6,389.31.

⁴ 26 U. S. C. A. §6321:

"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) 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."

⁵ 26 U. S. C. A. §6322:

"Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time."

⁶ Tex. Rev. Civ. Stat. Ann. Art. 4084:

"From and after the service of such writ of garnishment, it shall not be lawful for the garnishee to pay to the defendant any debt or to deliver to him any effects; nor shall the garnishee, if an incorporated or joint stock company in which the defendant is alleged to be the owner of shares or to have an interest, permit or recognize any sale or transfer of such shares or interest; and any such payment or delivery, sale or transfer, shall be void and of no effect as to so much of said debt, effect, shares, or interest as may be necessary to satisfy the plaintiff's demand. The defendant may at any time before judgment, replevy any effects, debts, shares, or claims of any kind seized or garnisheed, by giving bond, with two or more good and sufficient sureties to be approved by the officer who issued the writ of garnishment, payable to the plaintiff, in double the amount of the plaintiff's debt, and conditioned for the payment of any judgment that may be rendered against the said garnishee in such suit, which when properly approved shall be filed among the papers in the cause in the court in which the suit is pending. In all proceedings in garnishment where the defendant gives bond as herein provided for, such defendant may make any defense which the defendant in garnishment could make in such suit."

⁷ Such a rule controls the case at bar since the government alleged recordation of its lien in late August, 1965, and Youngstown did not become a judgment creditor until November, 1966.

⁸ See note 2, supra, on the grouping of the Bank with the materialmen.

⁹ Youngstown notes in its brief: "We have concluded that its [Midland Bank's] assignment was timely and properly perfected and that the claim of such Bank to the sum of $288.96 is prior and superior to the claim of all other parties. For that reason, such claim is not further discussed herein." Appellant's brief, p. 7.

¹⁰ We have also considered the statement in the Burns case that a mechanic's and materialman's lien "does not seem to take effect until after judgment." William J. Burns International Detective Agency v. General Electric Supply Co., Tex. Civ. App. 1967, 413 S. W. 2d 775, 777 (no writ). The authorities cited in support of this statement have no bearing on the facts which control the case here under review.

 

 

[73-1 USTC ¶9303] United States of America , Plaintiff v. Theodora Irene McNett, Berenice McNett, Rob ert E. McNett, John F. McNett, and Mound City Bank, Defendants

U. S. District Court, West. Dist. Wis., 70-C-8, 2/1/73

[Code Sec. 6323]

Motion for summary judgment: Validity of lien: Property transferred to trust: Fact finding.--The government's motion for summary judgment was granted where it sought to foreclose on a mortgage that attached to property before such property became part of trust principal under a will that provided the interest of trust beneficiaries could not be subject to claims of creditors.

John O. Olson, United States Attorney, Madison , Wis. , for plaintiff. W. Phil Karrmann, 73 E. Main St. , Plateville , Wis. , for defendants.

Opinion and Order

DOYLE, District Judge:

I find that there is no genuine issue as to any of the facts alleged in paragraphs III, IV, VI, VII, VIII, and IX of the complaint herein.

I find that there is no genuine issue as to any of the material facts which are stated in the section of this opinion following immediately hereafter under the heading "Facts."

Facts

Payments of $3,000.00 and $9,875.66 have been applied against the assessment in the amount of $49,536.41 which was made on December 31, 1964 . There remains due and owing the sum of $36,660.75, together with interest to the date of entry of this opinion and order in the sum of $14,100.67, or a total of $50,761.42.

No payments have been made as required on the mortgage note which appears as exhibit D to the complaint, and the entire principal and interest under said mortgage note are presently due.

Defendant McNett is in default of the installment payment agreement of December 7, 1965 , which appears as exhibit B to the complaint, except for the payments of $3,000.00 and $9,875.66.

As a result of said default, the United States is entitled to satisfy said agreement by looking to the mortgage which appears as exhibit C to the complaint, including the right to foreclose under the mortgage and mortgage note.

Opinion

In a brief in opposition to the plaintiff's motion for summary judgment, counsel for the defendants contend that the real estate which is the subject of the January 2, 1958, mortgage from Elmer D. McNett and Berenice McNett, his wife, to Louise McNett, has since become a part of the res of two testamentary trusts created by the will of Elmer D. McNett, and that the will creating said trusts provided that the interests of the beneficiaries of said trusts could not be subject to assignment, alienation, pledge, attachment or claims of creditors. These factual matters have not been presented as required by Rule 56, but I will accept them as fact for the purpose of this opinion and order.

The point is that at the time the real estate became a part of the res of the two trusts on August 16, 1966 , it was already subject to the mortgage of January 2, 1958 , and to the assessment of December 31, 1964 , and to the assignment of the mortgage on December 7, 1965 . It may be true that the interest of the beneficiaries of the trust may not be subject to assignment, alienation, pledge, attachment or claims of creditors, but a part of the res of the trust consists of the bundle of rights and duties which characterize that part at the moment it becomes a part of the res.

Order

Upon the basis of the entire record herein, the plaintiff's motion for summary judgment is granted. Within 10 days, counsel for plaintiff is to submit to the court a proposed judgment the provisions of which are consistent with the prayer of the complaint and the terms of the motion for summary judgment.

 

 

[70-1 USTC ¶9376]Wisconsin Department of Revenue, Plaintiff v. Paul Hemmy, individually and as admin istrator, Defendant v. United States of America, Intervener

Wis. Cir. Court, Branch #2, Waukesha County, No. 24029, 6/3/69

[Code Sec. 6321]

Lien for taxes: Priority: Intervener.--The Government's tax lien attached to the interest of the defendant, as the sole heir of the estate of his wife, at the date of her death and had priority over that of a claim of the State which was made subsequent thereto.

Stephen L. Koenig, Attorney for State of Wisconsin Department of Revenue. Collins, Collins & Andringa, 300 W. Main St. , Waukesha , Wis. , for Paul Hemmy. Frank C. Conley, Regional Counsel for United States Internal Revenue Service for U. S.

Decision

Voss, Circuit Court Judge:

The above entitled matter having come on for hearing before the Court on January 20, 1969, pursuant to a Notice of Motion for Summary Judgment, brought by the United States of America, the intervener herein. The plaintiff appearing by Attorney Stephen L. Koenig; the defendant appearing by Attorney Vincent J. Collins; the intervener appearing by Assistant United States Attorney Lawrence Becker. The Court having heard arguments of counsel, and having granted leave to file briefs in support of their respective contentions; said briefs having been received and reviewed, now, therefore, upon all the records and files herein, the Court finds and determines as follows.

The Motion for Summary Judgment is based upon the pleadings and a stipulation of facts entered into between the Wisconsin Department of Revenue and the United States of America by their attorneys.

It is undisputed that the United States has an uncontested claim for taxes, penalty and interest against the defendant, Paul Hemmy, in an amount in excess of $60,000.00. Notice of Federal Tax Liens, relating to the amounts claimed, were filed in Waukesha County on February 14, 1964, as Document Number 4232, and on March 16, 1964, as Document Number 4240. The United States Tax Liens predated the death of Paul Hemmy's wife, Eileen.

The State of Wisconsin docketed a Tax Warrant against Paul Hemmy with the Clerk of Circuit Court of Waukesha County on March 14, 1968 , said docketing occurring subsequent to the death of Eileen Hemmy.

The defendant, Paul Hemmy, is the sole heir, legatee and devisee of the Eileen Hemmy Estate, which is in probate in the Waukesha County Probate Court.

The issue involved in the question of priority of liens between the United States and the State of Wisconsin is whether the United States lien, in the instant matter, is a lien on Paul Hemmy's interest as an heir of his wife's estate.

The Wisconsin Supreme Court has held:

"The established rule in this state is that the property of a decedent passes, upon his death, to his legatees and devisees and the interest they may acquire, whether by inheritance or by will, they acquire at the time of death." 7 Wis. (2) 44.

It is the opinion of the Court that the lien of the United States attached to the interest of Paul Hemmy, as the sole heir of the Estate of his wife, Eileen, at the date of her death. The claim of the State of Wisconsin was not made the subject of a warrant until a date subsequent thereto. The lien of the United States is prior to that of the State of Wisconsin , and the United States is entitled to complete priority over the State of Wisconsin as to the interest of Paul Hemmy in the estate of his deceased wife.

Summary Judgment will be entered in favor of the United States of America in accordance with this decision and providing that the Administrator of the Estate of Eileen Hemmy be directed to turn over to the United States of America those assets of the estate which remain after paying the costs of admin istration.

 

 

[68-1 USTC ¶9246]Max B. Cohen, et al., Plaintiffs and United States of America, Intervenor v. William J. Daniel, Defendant Counterclaimant v. Max B. Cohen, et al., Counter-defendants.

U. S. District Court, Middle Dist. Fla., Tampa Div., Civil No. 66-99-Civ.-T;, 9/20/67, Amending findings of fact and conclusions of law in District Court decision, 67-2 USTC ¶9496

[1954 Code Sec. 6323]

Lien for taxes: Priorities: Amended findings of fact and conclusions of law.--In a case involving the priority of liens against property owned by a delinquent taxpayer, the court amended a portion of the findings of fact and conclusions of law in its prior decision (67-2 USTC ¶9496) to strike out its conclusion (67-2 USTC ¶9496) to strike out its conclusion a corporation be sold at public judicial sale. The court ruled that it had already provided for liquidation of the only assets of the corporation involved and for distribution of the proceeds from such liquidation. It felt that the rights of all parties concerned could be better protected by distribution of the proceeds of liquidation of the corporation's assets than by a sale of the stock which might not result in realization of its full value.

Arnold Levine, 725 E. Kennedy Blvd. , Tampa , Fla. , for plaintiff. Fowler, White, Gillen, Humkey & Trenam, P. O. Box 1438, Tampa, Fla., Rob ert B. McGowan, Assistant United States Attorney, P. O. Box 2841, Tampa, Fla., Rob ert L. Handros, Department of Justice, Washington, D. C. 20530, Don McGuire, 537 Tenth St., Bradenton, Fla., for defendants.

Motion to Amend Findings of Fact and Conclusions of Law ( 6/5/67 )

LIEB, District Judge:

Intervenor United States of America moves the Court, pursuant to Rule 52(b) of the Federal Rules of Civil Procedure, to amend its findings of fact and conclusions of law [67-2 USTC ¶9496] by striking out conclusion of law No. 19, on the grounds as follows:

In conclusion of law No. 19, the Court has provided for sale of the fifty shares of Max & Bill, Inc., owned by Max B. Cohen. However, the Court has also provided for liquidation of the only assets of Max & Bill, Inc., by sale of certain real property and collection of a judgment rendered in favor of Max & Bill, Inc., and for distribution of the proceeds of such liquidation. (Conclusions of law Nos. 6, 9, 10.) The Court has also determined the interests of the parties in the stock of Max & Bill, Inc. (Conclusions of law Nos. 2, 18.) Therefore, the rights of all parties could be better protected by distribution of the proceeds of liquidation of the assets of Max & Bill, Inc., according to the interests of the parties in its stock, than by a sale of the stock which might not result in realization of its full value.

The United States also requests the Court to defer entry of judgment pending ruling on this motion.

Order ( 9/20/67 )

This cause having come on for hearing on the Intervenor's Motion to Amend Findings of Fact and Conclusions of Law, and the Court having heard the argument of counsel, and no objections having been presented to the motion, and the Court being otherwise fully advised in the premises, it is hereby

ORDERED and ADJUDGED that the Motion be granted, and that the Findings of Fact and Conclusions of Law previously entered by this Court on May 25, 1967 , be amended, in that Conclusion of Law Number 19 be stricken.

 

 

[67-2 USTC ¶9496]Max B. Cohen, et al., Plaintiffs, and United States of America , Intervenor v. William J. Daniel, Defendant Counterclaimant v. Max B. Cohen, et al., Counter-defendants

U. S. District Court, Middle Dist. Fla., Tampa Div., No. 66-99-Civ. T., 5/25/67

[1954 Code Sec. 6323]

Lien for taxes: Priorities: Government as intervenor: State law.--In an action involving the priority of liens, the Government, as an intervenor, was found to have a valid first priority lien against a judgment obtained by the delinquent taxpayer-corporation against a corporate director for the conversion of the corporation's property. The taxpayer-corporation's lien on shares of its capital stock for an indebtedness owned to it by one of its directors had priority over the Government's lien for delinquent taxes owned by the director for 1958. The result was not changed even though the state law provision, "that no lien arose in favor of a corporation upon its shares of stock unless the right of the corporation to such lien was stated upon the certificates," was not met. The Government did not fall within the category of persons intended to be protected by the law, that is--good faith purchasers of the stock or those who loaned money upon the security of the stock. The Government's lien for delinquent taxes for 1961 and 1962 against the corporate director had priority over the taxpayer-corporation's lien against the corporate stock since the date of the assessment of the Government's lien was prior to the assessment of the corporation's lien.

Arnold Levine, 725 E. Kennedy Blvd. , Tampa , Fla. , for plaintiff. Fowler, White, Gillen, Humkey & Trenam, P. O. Box 1438, Tampa, Fla., Rob ert B. McGowan, Assistant United States Attorney, P. O. Box 2841, Tampa, Fla., Rob ert L. Handros, Department of Justice, Washington, D. C. 20530, Don McGuire, 537 Tenth St., Bradenton, Fla., for defendants.

LIEB, District Judge:

This cause came on for trial on March 20, 1967 , before the Court, without a jury, and the Court, having considered the pleadings, stipulations of record, pretrial order, evidence and arguments of counsel for the respective parties, makes the following findings of fact and conclusions of law:

Findings of Fact

1. Max & Bill, Inc., a corporation, was organized under the laws of the State of Florida on December 4, 1950 , and has been in existence continuously since that date.

2. The incorporators, subscribers to the capital stock and original stockholders of Max & Bill, Inc. were Max B. Cohen, one of the plaintiffs, William J. Daniel, the defendant and counterclaimant, and W. B. McKechnie. On or about December 14, 1950 , each of the aforementioned individuals subscribed to twenty-five (25) shares of capital stock of Max & Bill, Inc., and that number of shares was authorized to be issued to each. Stock certificate No. 1 of Max & Bill, Inc., dated December 14, 1950 , was issued in the name of Max B. Cohen. Stock certificate No. 2 of Max & Bill, Inc., dated December 14, 1950, was issued in the name of W. B. McKechnie, and thereafter, on or about September 23, 1960, he assigned the said certificate and the twenty-five (25) shares represented thereby to Max B. Cohen. Stock certificate No. 3 of Max & Bill, Inc., was issued in the name of W. J. Daniel, he being one and the same person as the defendant and counterclaimant herein.

3. The sole stockholders of Max & Bill, Inc. are Max B. Cohen, who owns fifty (50) shares of capital stock of the corporation, and William J. Daniel, who owns twenty-five (25) shares of capital stock thereof.

4. The original directors of Max & Bill, Inc., elected December 14, 1950 , were Max B. Cohen, William J. Daniel and W. B. McKechnie. Max B. Cohen and William J. Daniel continuously thereafter were and are directors of the corporation. W. B. McKechnie was a director continuously from his initial election until his death.

5. The officers of Max & Bill, Inc., initially elected December 14, 1950 , were Max B. Cohen, President, William J. Daniel, Vice President, and W. B. McKechnie, Secretary and Treasurer. Max B. Cohen and William J. Daniel have served as such officers continuously since their original election and are respectively the President and Vice President of the corporation. W. B. McKechnie served as Secretary and Treasurer of the corporation continuously from his initial election until his death.

6. On October 25, 1965 , purported meetings of the board of directors and stockholders of Max & Bill, Inc. were held in Miami , Florida , for the stated purpose of electing directors and officers of the corporation. Those meetings were held in violation of and contrary to the provisions of the by-laws of the said corporation, and any and all action taken or attempted to be taken at said meeting was and is void, including the election of Susan Johnston, the daughter of the said Max B. Cohen, as a director and Secretary and Treasurer of the corporation, and the election of Max B. Cohen, Jr., the son of the said Max B. Cohen, as a director and Vice President of the corporation. The said Susan Johnston and Max B. Cohen, Jr. were not legally elected directors and officers of the corporation on October 25, 1965, or thereafter, and neither of them has had any legal authority to act as a director or an officer of Max & Bill, Inc.

7. On or about November 22, 1965, Max & Bill, Inc. executed and delivered a partial release of mortgage dated November 22, 1965, and recorded November 24, 1965, in Official Record Book 263, on page 144, among the Public Records of Manatee County, Florida, releasing approximately twenty (20) acres of real property situated in said county from the liens of two mortgages executed by Samuel Friedland, as Trustee, to Max & Bill, Inc., both of said mortgages being dated December 20, 1955, one of said mortgages being recorded in Official Record Book 199, on page 192, among the Public Records of Manatee County, Florida, and the other being recorded in Official Record Book 199, on page 198, among the Public Records of said county. A part of the consideration for the execution and delivery by Max & Bill, Inc. of the said partial release of mortgage was to be the payment to the said corporation of the sum of $37,475.20 by Anthony S. Battaglia, as Trustee, or as attorney for Southern Realty & Utilities Corp. The said Susan Johnston was authorized to obtain on behalf of Max & Bill, Inc. the aforesaid sum of money from Anthony S. Battaglia, as Trustee, or as attorney for Southern Realty & Utilities Corp. She obtained the said sum of $37,475.20, but instead of delivering the same to Max & Bill, Inc., she converted the said sum to her own use.

8. The said Max B. Cohen was and is indebted to the said Max & Bill, Inc., for loans or advances by the corporation to him as follows:

  Year

Ended                      Loan         Repayment            Balance

8/13/58
 ....         $ 5,000.00                           $ 5,000.00

8/31/59
 ....                              $542.52           4,457.48

8/31/61
 ....          10,992.74                            15,450.22

8/31/62
 ....          38,474.56                            53,924.78

 

9. Section 4, of Article II, of the by laws of the said Max & Bill, Inc., adopted December 14, 1950, by the original board of directors consisting of Max B. Cohen, William J. Daniel and W. B. McKechnie, which said section has been continuously since then and now is in force and effect, provides as follows:

"The corporation shall have a first lien on all the shares of its capital stock, and upon all dividends declared upon the same, for any indebtedness of the respective holders thereof to the corporation."

10. The said Max & Bill, Inc. claims a first lien upon the fifty (50) shares of stock of said corporation owned by Max B. Cohen for the aforesaid indebtedness of Max B. Cohen to the corporation.

11. Section 614.17, Florida Statutes, which is the same as §15 of the Uniform Stock Transfer Act, and which was in full force and effect at the time Mr. Cohen acquired his shares of stock and at the time of the loans or advances by the corporation to him, reads as follows:

"614.17--No lien or restriction unless indicated on certificate.--There shall be no lien in favor of a corporation upon the shares represented by a certificate issued by such corporation and there shall be no restriction upon the transfer of shares so represented by virtue of any by-laws of such corporation, or otherwise, unless the right of the corporation to such lien or the restriction is stated upon the certificate."

12. Neither the right of the corporation to a lien nor the restriction contained in Section 4 of Article II of the by-laws of Max & Bill, Inc. was stated upon the stock certificates No. 1 or No. 2 of Max Bill, Inc.

13. The plaintiff, Max B. Cohen, is indebted to the intervenor, United States of America , for deficiencies in income taxes, with penalties and interest as follows:

  Taxable

Year                         Tax            Penalty           Interest               Total

1955 .......         $ 14,858.18            0               $ 6,373.34         $ 21,231.52

1956 .......           39,415.40            0                                    39,415.40

1957 .......           12,094.39            0                 3,736.50           15,830.89

1958 .......          117,321.27        $11,732.13           29,206.57          158,259.97

1959 .......           52,491.91            0                 9,918.09           62,410.00

Total ......                                                                   $297,147.78

 

14. The District Director of Internal Revenue made an assessment on May 12, 1961 , and filed a notice of tax lien for the as