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 [Notice of Tax Liens Filed]

On July 7, 1955 , notice of four Federal tax liens against defendant Harry Lewis, one of the owners, was duly filed in the Westchester County Clerk's office. Thereafter and on August 16, 1956, notice of four additional Federal tax liens against said Harry Lewis was also duly filed in said clerk's office.

The owners failed to pay the agreed monthly installments of principal and interest which became due under the consolidated first mortgage on March 1, 1959, and on the first day of each succeeding month up to and including December, 1959. On June 25, 1959, the plaintiff advanced and paid a renewal premium then due for fire insurance; and on September 22, 1959, the plaintiff also advanced and paid the school district taxes which became a lien on September 1, 1959.

[Foreclosure Proceedings]

The plaintiff commenced this foreclosure action in December, 1959. Pursuant to a stipulation made in the action, it was agreed in substance that there be reserved to the United States its right to assert the priority of its tax liens over the advances and payments so made by the plaintiff and over all other subsequently accrued local municipal taxes. Accordingly, the United States asserted its said claim of priority upon plaintiff's motion to confirm the referee's report of computations and to obtain judgment of foreclosure and sale. A judgment of foreclosure and sale in favor of and in the form proposed by the plaintiff was made and entered.

[Priority of Federal Liens]

On this appeal, the United States contends that such judgment is erroneous in that: (1) it confirms the referee's report of computations which includes, as a part of the mortgage debt found due to the plaintiff, the said advances or payments made by the plaintiff-mortgagee for the unpaid school taxes and insurance premium, thereby granting to the plaintiff priority for such advances over the Federal tax liens; and (2) it directs the referee (therein appointed to sell the mortgaged premises) to pay out of the proceeds of sale, prior to his payment of said Federal tax liens, those local real property taxes, assessments and water charges which accrued subsequent to the Federal tax assessments and the filing of the Federal tax liens, and which remained due and unpaid at the time of the sale.

In our opinion, the contention of the United States that its tax liens have priority over the sums so advanced and paid by the plaintiff-mortgagee and over all other subsequently accrued local realty taxes, assessments and water charges must be sustained under the rule in United States v. City of New Britain [54-1 USTC 9191] (347 U. S. 81), as subsequently applied in Metropolitan Life Ins. Co. v. United States of America (9 A. D. 2d 356) and Buffalo Savings Bank v. Victory (13 A. D. 2d 207).

The fact that sections 1082 and 1087 of the Civil Practice Act require that out of the proceeds of a mortgage foreclosure sale the referee shall pay the local taxes, assessments and water charges as "expenses of the sale" does not aid the plaintiff-mortgagee and does not take this case out of the operation of the New Britain rule. It has been held that a state, on behalf of a municipality, cannot impair the standing of Federal liens without the consent of Congress; that the characterization or effectiveness of a lien by state law, while good for all state purposes, is not necessarily binding on the Federal courts; and that the question of the priority of a federal lien is one to be determined by Federal law (Michigan v. United States, [43-1 USTC 9225, 10,002], 317 U. S. 338, 340; United States v. City of New Britain [54-1 USTC 9191], 347 U. S. 81, 84; United States v. Acri [55-1 USTC 9138], 348 U. S. 211, 213; United States v. Security Trust & Sav. Bank [50-2 USTC 9492], 340 U. S. 47, 49; United States v. Waddill, Holland & Flinn [45-1 USTC 9126], 323 U. S. 353, 357; Aquilino v. United States of America, 3 N. Y. 2d 511, 515, revd. [60-2 USTC 9538] 363 U. S. 509).

[Reliance on Prior Decision]

In view of the fact that in the case at Bar the Special Term, in rejecting the contentions of the United States on the issue of priority, relied on our decision in Rikoon v. Two Boro Dress (9 A. D. 2d 783), we deem it advisable to state that such decision was based upon our determination that the amended judgment of foreclosure and sale which had been granted in that case and which had not been vacated or appealed from, was conclusive and res judicata against the appellant, United States; and that by reason thereof, the United States had no standing to question the report of sale which disclosed that the referee, in allowing the purchaser at the sale a credit for local real estate taxes paid by the purchaser, had done what he was required to do pursuant to the provisions of the amended judgment.

By our decision in the Rikoon case, rendered without opinion, in which we affirmed the order of the Special Term, we did not intend to adopt or approve the various other grounds upon which the Special Term in that case had granted the order (see: 9 Misc. 2d 591). Nor did we, by our recitals in such decision of the various other grounds upon which Special Term had relied, intend to imply that we had passed upon the merits of the issue of priority. However, our said decision of affirmance was not expressly limited to the ground that the amended judgment was res judicata and that the referee had no alternative but to comply with its terms. Hence, the subsequent mistaken reliance by the Special Term in the present action (as well as by others) on the recitals contained in that decision is readily understandable.

[Right of Survivorship Preserved]

While the contentions of the United States on the issue of priority have been sustained here, attention must be directed to the existence of an important complicating factor which stands in the way of the present satisfaction of the Federal tax liens. Such Federal tax liens were filed against the defendant, Harry Lewis, only; they embrace taxes assessed against him alone. However, from the record it would appear that for some time prior to the commencement of this foreclosure action, the mortgaged premises were owned by the defendant Harry Lewis and by defendant Laila Lewis, his wife, presumably as tenants by the entirety; and that the premises have been so owned since the commencement of the action. The subject of the `property' or 'rights to property'" to which a Federal tax lien attaches is a matter of state law (Aquilino v. United States of America [60-2 USTC 9538], 363 U. S. 509, supra; United States v. Bess [58-2 USTC 9595], 357 U. S. 51).

In this state, it appears to be well settled that where realty owned by husband and wife is sold in a mortgage foreclosure action, the proceeds which remain after the mortgage debt is satisfied are constructively real property held in entirely by both spouses (Dunning v. Ocean National Bank, 61 N. Y. 497; Germania Sav. Bank v. Jung, 28 Abb. N. C. 81, 18 N. Y. S. 709). And while the interest of one such tenant may be conveyed, mortgaged, or sold upon execution, the grantee of such a conveyance or the purchaser upon a sale in an action to foreclose the mortgage or the purchaser upon an execution sale becomes a tenant in common with the other tenant by the entirety, but subject to said other tenant's right of survivorship (Hiles v. Fisher, 144 N. Y. 306; Finnegan v. Humes, 252 App. Div. 385, affd. 277 N. Y. 682; Bartkowaik v. Sampson, 73 Misc. 446; Infante v. Sperber, 187 Misc. 9; Stretz v. Zolkowski, 118 Misc. 806).

Since here, the Federal taxes were assessed and the Federal tax liens were filed against Harry Lewis only, it follows that such liens may attach only to his interest as a tenant by the entirety in the mortgaged premises. Under these circumstances, the judgment of foreclosure and sale here must also provide that if the proceeds of the sale of the premises should be in such a sum as to permit the Federal tax liens to attach thereto, then the portion of the proceeds to which said liens do attach shall be deposited with the Commissioner of Finance of Westchester County to the credit of this action and shall be held subject to further court order, so that Laila Lewis' right of survivorship in and to said fund may be preserved (cf. Germania Sav. Bank v. Jung, supra; Stretz v. Zolkowski, supra).

Accordingly, the judgment should be modified on the law, as follows:

(a) By directing that the Federal tax liens shall have priority over the payments made by the plaintiff for real estate taxes and for the insurance premium, and over all other subsequently accrued real estate taxes, assessments and water charges;

(b) By directing that if the proceeds of the foreclosure sale of the mortgaged premises should be in such a sum as to permit the Federal tax liens to attach thereto, then, instead of paying therefrom the amount due on said tax liens, the portion of such proceeds to which said liens do attach shall be deposited with the Commissioner of Finance of Westchester County, to the credit of this action, and shall be held subject to further court order; and

(c) By directing that for a period of one year after the sale of the mortgaged premises, the United States shall be entitled to redeem them pursuant to the equity of redemption accorded to it by Federal statute (U. S. Code, tit. 28, 2410, subd. c); and by directing that said premises be sold by the referee subject to said right of redemption in the United States.

As so modified, the judgment, insofar as appealed from, should be affirmed, without costs.

The findings of fact of the Special Term should be affirmed.

The order, to be settled on ten days' notice, shall specify the terms and provisions to be contained in the judgment of foreclosure and sale as here directed to be modified.

NOLAN, P. J., KLEINFELD, CHRIST and PETTE, Judges, concur.

 

 

[60-1 USTC 9319] United States of America v. E. E. Lawler, et al.

Va. Supreme Court of Appeals, Record No. 5033, 112 SE2d 921, 3/7/60

[1954 Code Sec. 6323]

Priority of tax liens: State's characterization of landlord's lien for rent: Binding effect on federal lien for taxes.--While under Virginia law a landlord had a specific and not merely an inchoate lien for nonpayment of rent, which related back to the beginning of the tenancy, and which was good for all state purposes, it was an inchoate lien, for purposes of priority over the Government's lien for federal taxes, where it was not perfected (in the conventional sense of a creditor's having a judgment) before filing by the Government of its notice of tax lien in accordance with the laws of Virginia.

Stanley Keeter, Assistant United States Attorney (John M. Hollis, United States Attorney, Richmond, Va., Joseph S. Bambacus, Assistant United States Attorney, on brief), for plaintiff in error. A. C. Epps, Charles W. Laughlin, Mutual Building, Richmond 19, Va. (Christian, Barton, Parker, & Boyd, Mutual Building, Richmond 19, Va., on brief), for defendants in error.

MR. JUSTICE I'ANSON:

The question presented in this case involves the relative priority of a landlord's lien under the laws of Virginia and a lien for unpaid income taxes due the United States .

The facts, which are not in dispute, are as follows:

[Landlord's Warrant for Rent]

On July 1, 1949, E. E. Lawler, hereinafter sometimes referred to as the landlord, leased certain premises in the city of Richmond to Elbridge L. Walker, and upon default in the payment of the rent a distress warrant was issued on January 7, 1957, for the past due rent in the amount of $600 for the period beginning on October 1, 1956, through January 31, 1957.

On February 6, 1957, the landlord caused the personal property on the premises to be attached to satisfy his claim in the amount of $750 for five months' future rent due under the terms of the lease.

On March 15, 1957, in execution of the distress warrant and writ of attachment, the high constable took possession of and sold the property distrained and attached, deriving therefrom $1,900.64 net after payment of expenses.

[Assessment of Income Taxes]

In the meantime, the District Director of Internal Revenue Service made an assessment on August 31, 1956, in the amount of $14,866.23 against Elbridge L. Walker and Dorothy N. Walker, his wife, for nonpayment of federal income taxes due for the years 1949 and 1950, and a statement demanding payment of the tax due was sent to the Walkers on September 4, 1956.

[Notice of Federal Tax Lien]

Notices of a federal tax lien arising out of the assessment were docketed in the judgment order books in the clerks' offices of the Chancery Court, and the Hustings Court, Part II, of the City of Richmond on October 26, 1956, pursuant to 55-139.1, Code of 1950, 1959 Replacement Volume.

Notice of the federal tax lien was served on the high constable prior to the sale of the goods and chattels distrained and attached on March 15, 1957, and notice of levy was served on him immediately after the sale.

[Interpleader by Landlord]

On April 24, 1957, the landlord filed interpleader proceedings in the court below, pursuant to 8-227, Code of 1950, 1957 Replacement Volume, requesting that the court order the high constable to pay the funds held by him into the registry of the court; that the United States of America be required to intervene or be forever barred to assert its claim to the funds; and that it determine the respective rights of himself and the United States to the funds derived from the sale of Walker's property.

The United States intervened and counsel for the respective parties entered into a stipulation of the facts and submitted the matter to the court for its determination.

[Writ of Error]

The trial judge was of opinion that 191, title 31, U. S. C. A. (R. S. 3466 1), a priority statute, did not give the federal tax lien priority over the landlord's lien, because there was no evidence of insolvency or death of the debtor, and that no other federal statute provided for priority of payment of the federal tax lien. Accordingly, judgment was entered in favor of Lawler in the amount of $1,732.85, which amount included court costs and $337.50 attorney fees provided for in the lease, and the court directed that $1,732.85 be paid to Lawler and the balance of $176.79 to the treasurer of the United States . From this judgment we granted the United States a writ of error.

We agree with the learned trial judge that the priority statute, 191, title 31, U. S. C. A. (R. S. 3466), has no application under the facts of this case, but other Internal Revenue Code sections and recent decisions of the Supreme Court of the United States need to be considered in order to determine the relative priorities of the parties to the fund interpleaded.

The applicable provisions of the statutes which we must consider are 6321, 2 6322,/3/ and 6323(a), 4 of the Internal Revenue Code of 1954, Public Law 591, 26 U. S. C., approved August 16, 1954, and read as follows:

"6321. Lien for taxes.--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."

"6322. Period of lien.--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 is satisfied or becomes unenforceable by reason of lapse of time."

"6323. Validity against mortgagees, pledgees, purchasers, and judgment creditors.

"(a) Invalidity of lien without notice.--Except as otherwise provided in subsection (c) [Exception in Case of Securities] 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; * * *."

[First in Time and Right]

The Government argues that under 6321 and 6322, supra, the federal tax lien attached to all of the property owned by the Walkers when the assessment was made; that since the landlord's lien was not perfected in the conventional sense of a creditor having a judgment of a court it was an inchoate lien and not protected under 6323(a), supra; and that the federal tax lien, having been duly docketed and recorded before Walker was in default in the payment of rent, and prior to the distraint and attachment of his property, is first in time and right, and should be paid out of the fund interpleaded before the landlord's lien.

[Nature of Landlord's Lien in Virginia ]

On the other hand, Lawler argues that under the laws of Virginia his landlord's lien is a specific and perfected lien for six months' rent, accrued and to accrue, and relates back to the beginning of the tenancy; that the provisions of the Internal Revenue Code do not give the federal tax lien a priority in this case, and that the trial court correctly ordered his lien to be paid out of the fund interpleaded before the federal tax lien.

Under the Virginia statutes, 55-227 5 and 55-231, 6 Code of 1950, 1959 Replacement Volume, a landlord is authorized to levy distress for rent upon "any goods of the lessee * * * found on the premises, or which may have been removed therefrom not more than thirty days * * * for not more than six months' rent if the premises are in a city or town * * *."

Section 55-233, 7 Code of 1950, 1959 Replacement Volume, provides that the goods of a tenant on leased premises in a city or town may not be removed by a lienor or purchaser whose rights arose after the commencement of the tenancy, nor taken under legal process, save "on the terms of paying to the person entitled to the rent so much as is in arrear, and securing to him so much as is to become due, * * *" not to exceed six months' rent.

[Landlord's Lien Fixed and Specific]

Sections 55-231 and 55-233, Code of 1950, 1959 Replacement Volume, give the landlord a lien which is fixed and specific, and not merely inchoate, and such lien exists independently of the right to proceed by distress or attachment, which are merely remedies for enforcing it. Such lien also relates back to the beginning of the tenancy. United States v. Waddill, Holland & Flinn, Inc., [45-1 USTC 9297] 182 Va. 351, 363, 28 S. E. 2d 741, 746 (reversed as to priority of federal tax claim under 191, title 31, U. S. C. A., now 3466, a priority statute, 323 U. S. 353, 89 L. ed. 294, 65 S. Ct. 304 [45-1 USTC 9126].)

[Matter of Federal Law]

The Supreme Court of the United States stated in the Waddill case, supra, (323 U. S. at p. 356) that the above interpretations by this court "of the Virginia statutes, as propositions of state law, are binding." However, the Court restated the role of state law in the determination of the relative priority of competing claims when it said (323 U. S. at pp. 356, 357):

"* * * [I]t is a matter of federal law as to whether a lien created by state statute is sufficiently specific and perfected to raise questions as to the applicability of the priority given the claims of the United States by an act of Congress."

[State Court's Characterization Not Binding]

A state court's characterization of a lien as fixed and specific and not merely inchoate, while good for all state purposes, is not necessarily binding on the Supreme Court of the United States . In determining the relative priority between such a lien and a lien of the United States for unpaid taxes a federal question is presented, and the state court's finding is subject to reexamination and final determination by the federal courts. People of State of Illinois, ex rel. Gordon v. Campbell, 329 U. S. 362, 371, 91 L. ed. 348, 67 S. Ct. 340, 345; United States v. Security Trust & Savings Bank, (1950) 340 U. S. 47, 95 L. ed. 53, 71 S. Ct. 111 [50-2 USTC 9492]; United States v. Acri, 348 U. S. 211, 99 L. ed. 264, 75 S. Ct. 239, 241 [55-1 USTC 9138].

In referring to the nature of a landlord's lien under the Virginia statutes in the Waddill case, supra, the court said (323 U. S. at p. 357):

"Tested by its legal effect under Virginia law, the landlord's lien in this instance appeared to serve 'merely as a caveat of a more perfect lien to come.' New York v. Maclay, supra, [288 U. S. 290, 294, 77 L. ed. 754, 53 S. Ct. 323 [3 USTC 1044]]. As of the date of the voluntary assignment it was neither specific nor perfected. It gave the landlord only a general power over unspecified property rather than an actual interest in a definitive portion or portions thereof."

[Sections of 1954 Code Considered]

Sections 6321 and 6322, Internal Revenue Code, 1954, provide that a federal tax lien attaches, when an assessment is made, to all property of one who neglects or refuses to pay any federal taxes after demand.

Section 6323(a) excludes by its provisions the liens created under 6321 only those types of interests in the four categories specifically mentioned in the statute, namely, mortgagees, pledgees, purchasers, and judgment creditors in a conventional sense, and no others. United States v. Security Trust & Savings Bank, supra, (concurring opinion of Mr. Justice Jackson, 71 S. Ct. 111 at pp. 114 and 115 [50-2 USTC 9492].)

[General Rule]

From the many recent decisions of the United States Supreme Court there has developed a general rule that even though a competing statutory lien is specific and choate under the state law, but in process of judicial enforcement, it cannot, irrespective of priority in time, prevail over a federal tax lien, unless the statutory lien has been reduced to final judgment. United States v. Acri, (1955) supra (attachment lien); United States v. Liverpool & L. & G. Ins. Co., (1955) 348 U. S. 215, 99 L. ed. 268, 75 S. Ct. 247 [55-1 USTC 9136] (garnishment lien); United States v. Scovil, (1955) 348 U. S. 218, 99 L. ed. 271, 75 S. Ct. 244 [55-1 USTC 9137] (landlord's distress lien); United States v. Colotta, (1955) 350 U. S. 808, 100 L. ed. 725, 76 S. Ct. 82 [56-1 USTC 9383] (mechanic's lien); United States v. White Bear Brewing Co., (1956) 350 U. S. 1010, 100 L. ed. 871, 76 S. Ct. 646 [56-1 USTC 9440], rehearing denied 351 U. S. 958, 100 L. ed. 1480, 76 S. Ct. 845, (mechanic's lien). See also Anno., 2 L. ed. 2d, Priority of Federal Tax Liens, beginning at p. 1823, 1841, 1853-1854. This general rule, however, was not applied in United States v. New Britain , (1954) 347 U. S. 81, 98 L. ed. 520, 74 S. Ct. 367 [54-1 USTC 9191], which dealt with a specific and perfected state tax lien.

Many excellent discussions on the priority of claims of the United States may be found in law review articles. A few of them are as follows: "The Pernicious Career of the Inchoate Lien," 63 Yale L. J. 905 (May 1954); "Taxation Liens--Priority of a Subsequent Federal Tax Lien Over an Antecedent Inchoate Lien," 54 Mich. L. Rev. (April 1956); "The Relative Priority of Government and Private Liens," 29 Rocky Mountain L. Rev. 167 (February 1957).

[Inchoate Lien for Federal Tax Purposes]

It is clear that Lawler's lien for rent cannot be paid out of the fund interpleaded before the Government's tax lien. Section 6321 does not confer a priority on the lien it creates, but the lien created by its language did attach to all of Walker 's property, pursuant to 6322, when the assessment was made on August 31, 1956 . While under Virginia law Lawler has a specific and not merely inchoate lien, which relates back to July 1, 1949 , the beginning of the tenancy, and good for all state purposes, under federal law his lien was inchoate at the time the federal tax lien arose and was duly recorded on October 26, 1956 , in the proper offices. At the time the federal tax lien attached to Walker 's property, he was not in default in the payment of rent, and the distress warrant and writ of attachment were not issued until several months thereafter. Lawler's lien had not been perfected in a federal sense when the federal tax lien came into existence. His lien was only "a caveat of a more perfect lien to come." Section 6323(a) affords him no protection because he does not qualify as a judgment creditor within the meaning of the statute. The evidence shows that the recorded federal tax lien, under the common-law priority rule, is "the first in time [and] is the first in right," and must be paid out of the fund interpleaded before the landlord's lien.

It follows that since the landlord's lien is not entitled to priority over the federal tax lien, neither is his claim for attorney's fees and costs. United States v. Liverpool & L. & G. Ins. Co., supra, (348 U. S. at p. 217, 75 S. Ct. at p. 248 [55-1 USTC 9136]); United States v. R. F. Ball Construction Co., Inc., et al., 355 U. S. 587, 2 L. ed. 2d 510, 78 S. Ct. 442 [58-1 USTC 9327].

The judgment of the lower court is reversed and distribution of the fund interpleaded is directed to be made in accordance with the view expressed in this opinion.

Reversed and remanded.

1 "Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or admin istrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall first be satisfied; * * *"

2 Formerly 3670, Internal Revenue Code of 1939.

3 Formerly 3671, Internal Revenue Code of 1939.

4 Formerly 3672(a), Internal Revenue Code of 1939.

5 Formerly 5519, Code of 1919.

6 Formerly 5523, Code of 1919, as amended.

7 Formerly 5524, Code of 1919, as amended.

 

 

[60-1 USTC 9351]Matter of Ryan Ready Mixed Concrete Corp. (Tallini Const. Corporation)

N. Y. Supreme Court, Nassau County, No. 11177/59, 11/30/59

[1954 Code Sec. 6323]

Priority of liens: "Perfected" judgment creditor's lien: Service of third party subpoena and restraining order: Reduction of fund to possession.--A New York judgment creditor acquired a lien superior to that of the Government's lien for withholding taxes where it acquired its judgment against the judgment debtor-tax delinquent and served a third party subpoena and restraining order on the party holding funds belonging to the debtor in advance of the time the Government served its notice of levy on the third party and filed its notice of lien. Since the Commissioner has held (Rev. Rul. 54-125, 1954-1 CB 282) that a judgment creditor in New York acquires a lien under the circumstances described in this case, and since the identity of the lienor, the property subject to the lien, and the amount of the lien are established, the lien is "perfected" within the meaning of Reg. 301.6323-1(a)(2)(b) without the necessity of having the fund reduced to possession.

Louis D. Schwartz, 150 Nassau St. , New York , N. Y., for judgment-creditor. Maxwell Cohen, 11 Broadway, New York , N. Y., for third party. Cornelius W. Wickersham, Jr., 271 Washington St. , Brooklyn, N. Y., for the United States .

MEYER, Justice:

This motion for an order directing the third party Glen-Rich Construction Corporation to pay over to the judgment creditor the amount of the debt owed by the third party to the judgment debtor is granted. The judgment was obtained on September 10, 1959 and on September 18, 1959 , the third party was served with a subpoena in supplementary proceedings. The United States Government on October 6, 1959 served a notice of levy for withholding taxes on the third party and on November 9, 1959 , filed with the Nassau County Clerk a notice of said tax lien. Under such circumstances, the judgment creditor prevailed in Matter of City of New York v. Gilmore's Steak House (15 Misc. 2d 730) [59-1 USTC 9376]. A third-party subpoena has also been upheld against a claim of priority by the United States Government in Rodac Distribution Corporation v. Crafcon Corporation (15 Misc. 2d 196) [59-2 USTC 9611]. Matter of Mariano v. Cathay House Restaurant (199 Misc. 410) and Matter of Dannenberg v. Leopold & Co. (188 Misc. 250) [46-2 USTC 9333], where the government had served a notice of levy on the third party but had not filed its notice of lien as required by I. R. C. section 6323, and in Brenner v. Patrician Restaurant (92 N. Y. S. 2d 246) and Manufacturers Trust Co. v. Sobel (175 Misc. 1067) [41-1 USTC 9200], where a notice of lien had been filed before the third-party subpoena but notice of levy had not been served on the third party. Apparently, the latter two cases no longer apply since Matter of Oxford Distributing Co. v. Famous Rob ert's (5 App. Div. 2d 507) [58-2 USTC 9538] makes clear that filing of the government's notice of lien is determinative and that levy by the government against the property in the hands of third party has no significance. And, where a receiver in supplementary proceedings was appointed before the notice of tax lien was filed, the rights of the judgment creditor were held paramount in Matter of Kohlman v. Alexander (1 App. Div. 2d 334 [56-1 USTC 9407], aff'd w. o. 4 N. Y. 2d 823) [56-1 USTC 9438].

The government contends, however, that it must prevail, since its notice of lien was filed before the judgment creditor had reduced the fund to possession. It relies on the rule that the relative priority of the lien of the United States for unpaid taxes is a federal question (Aquilino v. United States of America, 3 N. Y. 2d 511 [58-1 USTC 9191], cert. granted 359 U. S. 904; Matter of City of New York, U. S. A.-Coblentz, 5 N. Y. 2d 300 [59-2 USTC 9613], and points to the fact that by Federal Tax Regulations section 301.6323-1(a)(2)(b) "judgment creditor" is defined in the case of a judgment for a sum of money as one "who has a perfected lien under such judgment on the property involved." A perfected lien, under the holding of United States v. Gilbert Associates (345 U. S. 361 [53-1 USTC 9291]), requires reduction of the property to possession, it is argued, and this, in turn, requires execution under C. P. A., section 679; service of a third-party subpoena, it is contended, is not sufficient. For the latter proposition, the government cites Shenk Realty & Construction Company v. Barrett (178 Misc. 857) [42-2 USTC 9688]; see also Matter of Diaz (192 Misc. 212, 214).

Though ingenious, the argument cannot be accepted. It is to be remembered that on these papers no question of insolvency has been raised and, therefore, United States Code, Title 31, section 191, does not apply (Matter of Kohlman v. Alexander, supra). What we are concerned with is interpretation of I. R. C., section 6323. As appears from S. Rep. No. 1622, 83d Cong., 2d Session 575 (1954), the Senate struck out of the section which became I. R. C. section 6323, a provision that would have given priority to the federal lien if "no lien with respect to the property involved has been perfected under 'the judgment creditor's judgment.'" The report states that the committee preferred to "continue to rely upon judicial interpretation." The regulation, if construed to use the word "perfected" in a sense broader than given it by judicial interpretation would, therefore, be invalid (see Reeve, The Relative Priority of Government and Private Liens, 29 Rocky Mt. L. R. 167, 184). In any event in Rev. Rul. 54-125, 1954, 1 Cum. Bull. 282, the same department that prepared the regulation in question ruled, and to date has not withdrawn its ruling, that: "In the State of New York, a judgment creditor acquires a lien against funds of the judgment debtor in the hands of a third party upon a subpoena and restraining order in supplementary proceedings under the New York Civil Practice Act (In re Airmont Knitting & Undergarment Co., Inc., 182 F. 2d 740." The Airmont case relied in part on Matter of Wickwire Spencer Steel Co. v. Kemkit Scientific Corp'n, 292 N. Y. 139), which was decided after the Shenk Realty case (supra) and which held that upon service of a third-party subpoena, the judgment creditor acquires a lien. Thus, the departmental interpretation is that the word "perfected" in the regulation is satisfied by service of a third-party subpoena containing a restraining provision and that execution is not required. This interpretation is not contrary to United States v. Gilbert Associates (supra). That portion of that decision holding that "specificity" of lien requires "reducing the property to possession was concerned with U. S. C. Title 31, sec. 191, it having first been held that the creditor involved was not a judgment creditor. In the judgment creditor situation, a lien is "perfected" when "there is nothing more to be done to have a choate lien--when the identity of the lienor, the property subject to the lien, and the amount of the lien are established" ( United States v. New Britain, 347 U. S. 81, 84) [54-1 USTC 9191], and such a perfected lien takes priority if it is prior in time (Ibid. Kennedy, The Relative Priority of the Federal Government (63 Yale L. R. 905, 929; Plumb, Federal Tax Collection and Lien Problems, 13 Tax L. R. 459, 502). It follows that the judgment creditor is entitled to the turnover order it seeks. Settle order on notice.

 

 

[60-1 USTC 9281]Howard A. Rikoon, Irwin Rikoon and Marilyn E. Sperber, individually and doing business as Rikoon Real Estate, plaintiffs-respondents v. Two Boro Dress, Inc., The People of the State of New York, The City of New York, defendants-respondents, Maurice Rosenthal, Alphonse Cardillo, defendants, and the United States of America, appellant Nathan Tannenbaum, Esq., referee to sell, and Abraham Slavit, purchaser, respondents

N. Y. Supreme Court, Appellate Div., 2nd Dept., No. 52-83-1956, 7/28/59 , Affirming N. Y. Sup. Ct., 58-1 USTC 9442, 171 N. Y. S. (2d) 19

[1954 Code Sec. 6323]

Lien for taxes: Priorities: Municipal tax liens.--In bankruptcy proceedings, the judgment of foreclosure and sale provided that the referee was to pay New York City real estate taxes, assessments and water rates. The terms of sale, however, provided that the buyer was to make such payment and was to receive a credit toward the purchase price for such payment. On motion of the buyer, the judgment of foreclosure and sale was amended to conform with the terms of sale. The referee's report of the sale was confirmed over objections by the United States that its tax liens, which were prior in time to the municipal tax liens, were superior to the municipal liens. The trial court said that since, under New York law, the municipal taxes were "expenses of sale," they were entitled to priority. The Government's appeal from the order confirming the judgment of foreclosure and sale is dismissed in the instant proceeding, as is its appeal from the order confirming the referee's report, except that the report was ordered corrected to deduct $435 from the expenses of sale and to make corresponding changes. See also amended judgment at 60-1 USTC 9282.

Cornelius W. Wickersham, Jr., United States Attorney, 271 Washington Street, Brooklyn 1, N. Y. (William A. Dubrowski, of for appellant. Elliott Biskind, 160 Broadway, New York , N. Y., for plaintiffs-respondents. Charles H. Tenney, Corporation Counsel, Municipal Building , New York , N. Y. (Benjamin Offner, of counsel), for respondent, City of New York . Nathan Tannenbaum, 521 Fifth Avenue , New York 17, N. Y., referee to sell. David Novick, 11 East 44th Street , New York , N. Y., for A. Slavit, purchaser. Joseph V. Costa, 16 Court Street, Brooklyn 1, N. Y., for respondent Two Boro Dress, Inc. Lewis Lefkowitz, Attorney General, 270 Broadway, New York, N. Y., for respondent People of New York State.

Before NOLAN, P. J., WENZEL, BELDOCK, UGHETTA and HALLINAN, Judges.

Appeal by the United States of America (1) from an order entered February 20, 1957 granting the motion of the plaintiffs-respondents to amend, nunc pro tunc, the judgment of foreclosure and sale herein dated October 16, 1956, and (2) from so much of an order entered December 5, 1957 as granted said respondents' motion to confirm the Referee's report of sale and as denied appellant's motion to correct said report of sale.

Order of December 5, 1957 modified (a) by directing that the Referee's report of sale be corrected to the extent of deducting $435.66 from the expenses of the sale and to the extent of making appropriate changes in the balances and in the distributions resulting from such deduction, (b) by granting the motion of the plaintiffs-respondents to confirm the Referee's report of sale after it has been corrected as indicated above, (c) by granting, to the extent indicated above, appellant's cross motion to correct said report, (d) by striking from the first and third ordering paragraphs the figure "$3285.95" and by substituting therefor the figure "$2850.29", and (e) by striking from the fifth ordering paragraph the figure "$633.55" and by substituting therefor the figure "$1069.21". As so modified, order insofar as appealed from unanimously affirmed, without costs.

The $435.66 hereby directed to be deducted represents taxes for the second half of 1956-1957, which accrued and became liens after the date of sale. The judgment of foreclosure authorizes the payment only of the taxes which accrued prior to the date of sale. The Referee is not authorized to pay any subsequent taxes (cf. Hulst v. Maresca, 238 App. Div. 862 [see, also, 263 N. Y. S. 343]).

Appeal from order of February 20, 1957 dismissed, without costs.

As to appellant said order is in effect an ex parte order from which an appeal does not lie (Sigretto v. R. H. S. B. Holding Corp., 218 App. Div. 752).

Settle order on notice.

 

 

[60-1 USTC 9133]Metropolitan Life Insurance Company, Plaintiff-Respondent v. United States of America, Defendant-Appellant, and Guerlain White, Inc., et al., Defendants

N. Y. Supreme Court, Appellate Div., First Dept., No. 1996, 194 NYS2d 168, December 15, 1959

[1939 Code Sec. 3672--similar to 1954 Code Sec. 6323]

Lien for taxes: Priority: Local taxes paid by mortgagee after federal tax lien arises.--Lien for federal taxes has priority over local property taxes and water charges voluntarily paid by the mortgagee after the federal lien arose. The mortgage was executed before the lien for the federal taxes arose. The priority of the mortgage does not extend to the mortgagee's payments after the federal tax lien arose.

Stephen Kurzman, Assistant United States Attorney, Foley Square, New York City, N. Y., of counsel (S. Hazard Gillespie, Jr., Foley Square, New York City, N. Y.) for defendant-appellant. Roger E. Seidel, One Madison Avenue, New York, N. Y. (Theodore H. Friend, Tanner, Friend, Kinnan & Post, with him on brief), for plaintiff-respondent.

[Priority of Lien]

FRANK, Judge:

In this case we are called upon to decide whether a federal tax lien has priority over the voluntary payments by a mortgagee of local real estate taxes and water charges which accrued after the recording of the federal lien, although the mortgage under which the local liens were paid was recorded several years before the federal lien arose.

The question is close and not entirely free from doubt. The learned court at Special Term held, in effect, that the payments for local taxes by the plaintiff had priority over the federal lien.

The chronology of events is neither complicated nor disputed. To secure a loan it made, the plaintiff received a bond and mortgage from the owner of the property in question, which was recorded on May 7, 1946. The instrument, in statutory form, contained the usual provision requiring the mortgagor to pay all taxes, assessments, and water charges, and in default thereof, the mortgagee had the option to make such payments and add them to the balance due on the obligation. Some time after it acquired title, the nonappealing defendant, who was not the original mortgagor, defaulted, and a foreclosure action was commenced on September 28, 1958, to which action the United States was made a party defendant on January 19, 1959.

On December 9, 1952, a lien against the owner for unpaid federal taxes in the sum of $6,807.94 arose by virtue of an assessment list filed with the Collector of Internal Revenue. Thereafter, on July 21, 1954, a notice of lien was filed in the office of the Register of the City of New York , Bronx County , where the property is located. For our purposes, the distinction between the 1952 and 1954 dates is immaterial.

[Local Taxes Paid by Mortgagee]

Commencing on June 27, 1958, approximately four years after the notice of the federal lien was filed in the Register's Office, the plaintiff mortgagee commenced to pay City real estate taxes and water charges. The earliest local lien attached on June 20, 1957 and the total sum paid, covering the period from that date to September 20, 1958, was $4,022.17, including interest.

The Real Property Law 1 of the State directs that payment of taxes, assessments, and water rates, if made by the mortgagee, are secured by the mortgage and, in effect, become a part of the original debt or unpaid balance secured by the mortgage. Essentially, the respondent argues that since the mortgage has priority over any subsequent lien under New York law, and since the local taxes paid are secured by the mortgage, the preference granted to it in that respect by the judgment is correct. As authority for its position, the respondent places reliance upon Rikoon v. Two Boro Dress Inc. (9 Misc. 2d 591 [58-1 USTC 9442]; modified on other grounds 8 A. D. 2d 986 (2d Dep't); reargued 9 A. D. 2d .....). That case treated taxes unpaid at the time of the foreclosure as expenses of the foreclosure sale under Sections 1082 and 1087 of the Civil Practice Act and held them not subordinate to the federal lien. That determination was predicated, therefore, on a different state of facts. Even if we were to assume that Rikoon is precisely applicable to the situation here, we can neither adopt nor follow the rule.

We are confronted with a federal statute here. 2 While it is true that state law defines and regulates the plaintiff's lien, federal law determining the priority of federal tax liens with respect to mortgages and other state and local liens remains paramount (Aquilino v. United States of America, 3 N. Y. 2d 511, 515) [58-1 USTC 9191], and it is a federal question to be determined by the federal courts (United States v. Acri, 348 U. S. 211, 213 [55-1 USTC 9138]; Illinois v. Campbell, 329 U. S. 362, 371; United States v. Security Trust & Savings Bank, 340 U. S. 47, 49 [50-2 USTC 9492]). Moreover, the characterization or effectiveness of a lien by state law, does not necessarily bind the federal courts (United States v. Acri, supra; see also United States v. Waddill Co., 323 U. S. 353, 357 [45-1 USTC 9126]). In essence, Metropolitan takes the position that the doctrine of relation back should be applied and, as indicated herein, the payments for taxes which it made should be treated as part of the original mortgage lien. Without detailing the reasons therefor, it will suffice to say that the doctrine of relation back has been rejected by the United States Supreme Court (United States v. Security Trust & Savings Bank, supra; see also United States v. Christensen, et al., 269 F. 2d 624 [59-2 USTC 9621]).

In United States v. New Britain (347 U. S. 81 [54-1 USTC 9191]) the contest revolved around the priority of federal tax liens and city liens for delinquent real estate taxes and water charges. The United States Supreme Court discussed the view taken by the Connecticut Court of last resort that the local liens had priority since "the mortgagee could have paid the delinquent real estate taxes and wate rent, with the amount so paid becoming part of the mortgage debt covered by the mortgage lien * * *." Although the Supreme Court indicated that there was no need to pass on the merits of the suggestion because the problem was not presented by the record in the case, it rejected the proposition as inapplicable to the federal law.

The rationale of New Britain was thereafter specifically applied in a factual situation closely akin to the case under consideration ( United States v. Christensen, etc., et al., 269 F. 2d 624, C. A. 9th Cir. [59-2 USTC 9621]). In that case the District Court ( Arizona ) held that local real property taxes took priority over federal tax liens. The delinquent local taxes were paid by the mortgagee under an instrument, like the one here, that permitted him to do so and to add such sums to the mortgage indebtedness. The local liens were later in time than the federal ones. In reversing the judgment, the Court of Appeals flatly stated, "Payment of state taxes on mortgaged property by a prior mortgagee after federal tax liens are recorded does not give the mortgagee a lien for such local taxes superior to the appellant's prior tax liens."

[Federal Tax Lien Has Priority]

The rule that "the first in time is the first in right" has been accorded general acceptance (33 Amer. Jur., Liens, Sec. 33; 53 C. J. S., Liens, Sec. 10b), has been approved by the highest court in the land ( United States v. New Britain , supra) and should be applied to the case at bar. There can be no quarrel with the proposition that the national government is not to be frustrated in the collection of revenue by the tax priority laws of half a hundred different states.

From the foregoing, it must be concluded that contentions similar to those urged by the plaintiff here have been considered and rejected by the federal courts.

We agree with the reasoning in Christensen and we are persuaded that the rule adopted in that case, conforming as it does to the rationale of New Britain , should be applied here.

The judgment should be modified on the law to reject so much of the Referee's report as grants priority to payments made by the plaintiff for real estate taxes, water charges and interest thereon over the tax lien of the United States of America and to grant priority to the federal lien. As so modified the judgment should otherwise be affirmed with costs to the appellant.

1 Real Property Law, Sec. 254(6) provides in part that a covenant such as is contained in the mortgage foreclosed in this case "must be construed as meaning" that "in default thereof the holder of this mortgage may pay the same and the mortgagor will repay the same with interest, and the same shall be liens on said premises and secured by the mortgage". (Italics supplied.)

2 PROPERTY SUBJECT TO LIEN.

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount * * * shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person. (26 U. S. C. 1952 ed., Sec. 3670.)

PERIOD OF LIEN

Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector * * *. (26 U. S. C. 1952 ed., Sec. 3671.)

VALIDITY AGAINST MORTGAGEES, PLEDGEES, PURCHASERS, AND JUDGMENT CREDITORS.

(a) Invalidity of lien without notice. Such lien shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector--

(1) Under States or Territorial Laws. In the office in which the filing of such notice is authorized 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 authorized the filing of such notice in an office within the State or Territory; or * * *. (26 U. S. C. 1952 ed., Sec. 3672.)

 

 

[59-2 USTC 9609]Koehler, plaintiff v. Aljon Homes, Inc., et al., defendants

N. Y. Supreme Court, Appellate Div., Second Dept., App. Div., No. 88E, 6/30/59, Aff'g an unreported order of the New York Supreme Court, Special Term, Nassau County, as modified by stipulation of the parties

[1939 Code Sec. 3762(a)--similar to 1954 Code Sec. 6323(a)]

Lien for taxes: Priority: Mechanic's liens recorded prior to recording of federal tax lien.--An unreported order of the New York Supreme Court, Special Term, Nassau County, entered on July 13, 1956, disapproved the report of the referee in a surplus money proceeding under New York law to the extent that the referee found that a federal tax lien was superior to mechanic's liens which had been recorded prior to the recording of the tax lien. The Court further ordered that the surplus funds, after being applied in payment of the referee's fee and disbursements, be paid to the mechanic lienors. The United States appealed, and the parties to the appeal then agreed by stipulation to a modification of the lower court's order. Under the modification the referee's report was confirmed in all respects and the surplus funds remaining after payment of the referee's fee and disbursements were ordered to be paid to the United States . Here, the Appellate Division of the New York Supreme Court affirmed the order as modified by stipulation. The effect of the Court's action, however, was to nullify the opinion of the Special Term reported at 57-1 USTC 9239.

William A. Dumbrouski, United States Attorney, for appellant. Leon Berg, 3202 30th Avenue, Long Island City, Louis K. Lefkowitz, Attorney General, Donald W. Engles, 209 Sunrise Highway, Rockville Centre, L. I., Ira J. Lefton, 160 16 Jamaica Avenue, Jamaica, L. I., Joseph L. Bellamente, 412 Jericko Turnpike, New Hyde Park, L. I., Goldman Horowitz & Cherno, 390 Old Country Road, Mineolo, L. I., Joseph J. Einhorn, 21 East 40th Street, New York City, for respondent.

WENZEL, Judge:

An order entered July 13, 1956 (1) disapproved the report of a referee in surplus money proceedings in so far as it found that the lien of the United States of America for taxes was superior to any of the mechanic's liens filed with the County Clerk, Nassau County, prior to June 5, 1953, (2) directed the County Treasurer, Nassau County, to pay to the referee $366.25 as his fee and disbursements, and (3) directed the county treasurer to distribute the balance of the surplus funds to six named lienors. The Special Term based its decision on the authority, among others, of Aquilino v. United States of America (140 N. Y. S. (2d) 355 [55-2 USTC 9720]). The United States of America appealed from so much of the order as disapproved the referee's report, and as directed the county treasurer to pay the balance of the surplus funds to the six named lienors. The appeal was placed on the calendar with a stipulation, signed by the attorneys for all the parties to the appeal except the referee, agreeing to a modification of the order appealed from, subject to the approval of the court, so as to confirm the report of the referee in its entirety and to direct the county treasurer to pay the balance of the surplus funds remaining after payment of the referee's fee and disbursements to the appellant. On the stipulation of the parties and on the papers on appeal, order modified (1) by striking from the first ordering paragraph everything beginning with the words "insofar as" and ending with the word "disapproved" and by substituting therefor the words "is in all respects confirmed," and (2) by striking from the second ordering paragraph everything following the words "be paid" and by substituting therefor the words "by the said County Treasurer to the United States of America." As so modified, order in so far as appealed from unanimously affirmed, without costs.

 

 

[59-2 USTC 9489]Dunkirk Trust Company, 339 Central Ave., Dunkirk, N. Y., Plaintiff v. Dunkirk Laundry Co., Inc., 205-209 Central Ave., Dunkirk, N. Y., Amelia Rhodes d/b/a Rhodes Welding Works, 2412 Bailey Ave., Buffalo, N. Y., United States of America, People of the State of New York, Industrial Commissioner, Albany, N. Y., John H. Brogan & Co., Inc., 531 Delaware Ave., Buffalo 2, N. Y., H. D. Taylor Co., Buffalo, N. Y., Buffalo Business Forms, Inc., 189 VanRensselaer St., Buffalo, N. Y., Rochester Carman Supply Corporation, 95 Frankford St., Rochester, N. Y., Chautauqua Chemicals Co., Inc., 925 Clinton St., Jamestown, N. Y., Campbell Elevator Company, Inc., 266 Pearl St., Buffalo, N. Y., Citizens Fur Service, Inc., 665 William St., Buffalo, N. Y., Frontier Alkali Corporation, 210 Amherst St., Buffalo, N. Y., Presque Isle Paper Products, Inc., 2007 Pennsylvania Drive, Erie, Pa., Root, Neal & Co., 64 Peabody St., Buffalo 10, N. Y., Thomas S. Claxton and Hugh W. Alderdice, 90 Main St., Buffalo, N. Y., and Globe Indemnity Company, 150 Williams St., New York 38, N. Y., Defendants

State of New York , Chautauqua County Court , 2/24/59

[1954 Code Sec. 6323]

Tax liens: Priority.--Liens for federal taxes were superior to liens for local taxes in New York subsequent to them in time. The relative priority of federal tax liens is a matter of federal law, not state law.

Woodin & Woodin, Dunkirk , N. Y., for plaintiff. John O. Henderson, United States Attorney, and William I. Schapiro, Assistant United States Attorney, 502 United States Courthouse, Buffalo 2, N. Y., for United States. Joseph J. Ricotta, City Attorney, for the City of Dunkirk . Palmer & Spann ( Rob ert N. Palmer, of counsel), for Pietro & Rusch, Inc.

Decision and Order

FANCHER, County Judge :

The United States is a defendant lienholder in this mortgage foreclosure action, having filed a notice of appearance requesting service of all pleadings and papers and notice of all proceedings. A judgment of foreclosure and sale was signed by this court and entered on December 1, 1958 . Pursuant to Article 9 of the Civil Practice Act, the United States now seeks to correct and amend nunc pro tunc that judgment. It objects to so much of the judgment that requires the payment of all local tax and assessment liens against the mortgaged property out of the proceeds of sale before payment of the federal tax liens. From the pleadings and papers in this action, it appears that six of the eight federal tax liens in this action, on which $14,300.21 plus interest remains unpaid, were assessed prior to the date of the earliest local tax lien, a lien in favor of the City of Dunkirk . The federal tax liens arise under Sections 6321 and 6322 of the Internal Revenue Code of 1954. The United States contends that under applicable law federal tax liens created under these sections are superior to all liens subsequent to them in time, such as the city tax liens involved here.

The judgment complained of conformed to the requirements of New York law. Sections 1087 and 1082, Civil Practice Act, and Rule 259, Rules of Civil Practice, authorize local tax and assessment liens to be paid out of the proceeds of sale in preference to all other liens, including the liens of the plaintiff-mortgagee and the United States .

Federal law holds to the contrary, however. The leading case of United States v. City of New Britain, 347 U. S. 81 (1954) [54-1 USTC 9191], held that federal tax liens in foreclosure actions are subordinate only to liens which became choate prior in time to the date of the federal liens, and are superior to all other liens. In that case the United States Supreme Court overturned a Connecticut state court judgment of foreclosure and sale which had given first priority of payment, as required by Connecticut statutes, to all city tax liens and water charges. On remand from the Supreme Court, the state court ordered that a sum be first set aside from the proceeds of the sale equal to the amount of the liens which were prior in time to the federal tax liens; that the various federal and city tax liens be paid out of the remaining proceeds in the order of time in which they arose, to the extent that such proceeds were available; and that any city liens remaining unpaid be satisfied out of the proceeds which were set aside for the junior of the two liens prior in time to the federal liens. Brown v. General Laundry Service, 19 Conn. Super. 335, 113 A. (2d) 601 (1955) [55-1 USTC 9427].

The New Britain decision is controlling on this court. Federal law supersedes contrary New York law here, as it did Connecticut law in that case, because the relative priority of federal tax liens is a matter of federal law. United States Constitution, Article I, Section 8; United States v. City of New Britain , supra; Aquilino v. United States , 3 N. Y. (2d) 511 (1957) [58-1 USTC 9191].

The judgment of foreclosure and sale of this court dated December 1, 1958, therefore, is incorrect with respect to the relative priority of the federal tax liens. It is correct, however, with respect to the relative priorities of the liens of all other defendants, who are bound by the New York law giving first priority to the local taxes, assessments and water rates which are liens upon the property sold.

The motion of the United States is granted.

IT IS ORDERED AND DECREED that the judgment of foreclosure and sale be amended nunc pro tunc to provide that a sum equal to the following charges and liens shall be paid out of the proceeds of sale ahead of the federal tax liens: (1) The referee's fees and expenses, (2) the costs and charges of the plaintiff's attorneys, (3) the amount due on the plaintiff's bond and mortgage, and (4) other liens (if any), including city and school tax liens, which becamc "choate," as that term is defined by federal law, prior to the date of the federal tax liens. To the extent that they are available, the remaining proceeds will be allocated to the federal tax liens and all other liens not included in category (4) in the order of time in which they arose and became choate. Any city or school tax liens remaining unpaid under the foregoing allocation shall be paid out of the proceeds allocated to the most junior lien or liens other than federal tax liens.

Further proceedings shall be consistent with this order.

 

 

[59-1 USTC 9453]Metropolitan Life Insurance Company, a corporation, Plaintiff v. Edward L. Wells, Mary H. Wells; Title Insurance & Trust Company, a corporation; Victoria A. Block; B. H. Anderson; The United States of America; First Doe to Tenth Doe, inclusive, Defendants

Superior Court of Calif. , County of Los Angeles , No. Pomo C-3129, 3/17/59

[1954 Code Sec. 6323]

Lien for taxes: Priority as against judgment creditor: Requirement that abstract of judgment be filed under California law.--The rights of a creditor who obtained a judgment in a California court before a federal tax lien against the debtor was filed, but who did not record an abstract of the judgment until after the tax lien had been filed, were subordinate to the tax lien. Miller v. Bank of America , (CA-9) 48-1 USTC 9185, 166 Fed. (2d) 415, was cited as authority for the conclusion that a judgment creditor must obtain not only a judgment, but also a judgment lien, before the filing of a federal tax lien in order to be entitled to priority. In this case, a mortgagee's rights were superior to the federal tax lien.

Homer H. Henrie of Carter, Young, Zetterberg & Henrie, California Bank Building, Pomona , Calif. , for plaintiff. William Katz, Harry Boxer, Suite 415, Chester William Building, 215 W. 5th Street, Los Angeles 13, Calif., for Victoria A. Block. Laughlin E. Waters, United States Attorney, Edward R. McHale, Assistant United States Attorney, Chief, Tax Division, 808 Federal Building, Los Angeles 12, Calif., for United States.

Findings of Fact and Conclusions of Law

ZIEMANN, Superior Judge:

This cause came on for trial on December 4, 1958, before the Honorable Howard J. Ziemann, Judge of Pomona "B" of the Superior Court of Los Angeles County, State of California, sitting without a jury, Homer H. Henrie of the law firm of Carter, Young, Zetterberg & Henrie, appearing as attorney for the plaintiff, and Edward R. McHale, assistant United States Attorney, appearing as attorney for Defendant, THE UNITED STATES OF AMERICA, Harry Boxer, appearing for Defendant, VICTORIA A. BLOCK, and it appearing to the satisfaction of the Court that Title Insurance and Trust Company and B. H. Anderson, Edward L. Wells and Mary H. Wells, have been duly and regularly served with Summons herein, and have failed to answer herein, and that the default of those defendants for failing to appear and answer herein has been regularly entered herein, and the dismissal having been entered as to FIRST DOE TO TENTH DOE, inclusive, and evidence both oral and documentary having been submitted to the Court, and the Court being fully advised of the premises, renders its decision as follows, and finds the following Findings of Fact:

Findings of Fact

1. That each and every allegation contained in Paragraphs 2, 3, 4, 5, 6, 7 and 12 of Plaintiff's Complaint is true.

2. That there is now due, owing and unpaid to Plaintiff herein from the Defendants Edward L. Wells and Mary H. Wells, and each of them, the following:

(a) For and on account of principal upon said promissory note and deed of trust described in Plaintiff's Complaint, the sum of Ten Thousand Four Hundred Sixty-Two and 21/100 Dollars ($10,462.21);

(b) For and on account of interest due on said note, the sum of Five Hundred Fifty-Two and 72/100 Dollars ($552.72);

(c) For and on account of costs incurred herein and the filing and service of said Complaint, the sum of $22.00;

(d) For the sum of One Thousand Dollars ($1,000.00) as a reasonable and proper amount to be allowed to Plaintiff for its attorneys' fees herein incurred, and

(e) Making a total of $12,036.93, and there is now due, owing and unpaid to Plaintiff from said Defendants Edward L. Wells and Mary H. Wells, and each of them, said sum.

3. That on September 21, 1956, the delegate of the Secretary of the Treasury assessed against the Defendants and taxpayers Edward L. Wells and Mary H. Wells, federal income taxes for the calendar year 1955, in the sum of $3,660.48; that shortly thereafter notice of the tax assessed was given to the taxpayers and demand was made upon them for the payment of the taxes so assessed; that said taxpayers, after notice and demand, paid only the sum of $389.30, and no more, and remain indebted to the United States of America for the balance; that on December 28, 1956, a notice of tax lien was filed in the office of the County Recorder of Los Angeles County, California, pursuant to Section 6323 of the 1954 Internal Revenue Code as lien number 180112; that there remains due, owing and unpaid to the United States of America on said assessment, the sum of $3,834.74, which represents the balance of the assessed tax plus subsequently accruing penalties and interest computed through January 15, 1959, at the statutory rate of six per cent per annum, which amounts to $0.54 per day, until paid; that, in addition, lien filing fees of $1.50 have been incurred.

4. That on May 29, 1956, an action was filed in the Superior Court of the State of California, in and for the County of Los Angeles, Case No. 661057, entitled Minnie Bennett, plaintiff, versus B. F. Wells, E. L. Wells, et al.; that the amount demanded was $39,789.79, together with interest and costs of suits; that on June 6, 1956, an attachment issued out of the Superior Court in said action and on the same day was recorded as Instrument No. 4876 in Book 51374, Page 422 of the Official Records of Los Angeles County; that a judgment was entered therein on July 20, 1956, in favor of the plaintiff, and against the defendants, in the sum of $40,845.99, plus costs in the amount of $331.10; that an assignment of said judgment from the plaintiff to Victoria E. Bloch was filed therein October 23, 1956; that an abstract of judgment for $41,177.09, and any other amount due thereunder against B. F. Wells, et al., in favor of Victoria E. Block, assignee of Minnie M. Bennett, was recorded February 20, 1958, as Instrument No. 2527 in Book 56490, Page 480, of the Official Records of the County of Los Angeles.

Conclusions of Law

1. That the lien of the United States for taxes owing to it by Edward L. and Mary H. Wells arose on the date of the assessment, September 21, 1956, and became valid against the world, except as to mortgagees, pledgees, purchasers and judgment creditors, as to which it became valid on the date of filing, December 28, 1956; that Metropolitan Life Insurance Company became a "mortgagee" within the meaning of Internal Revenue Code, Section 6323, on March 3, 1953.

2. That Victoria Bloch did not become a judgment creditor within the meaning of Section 6323 of the Internal Revenue Code until February 20, 1958, when she recorded with the County Recorder of Los Angeles County an abstract of her judgment pursuant to Cal. CCP Section 674; that until said abstract of judgment was recorded she had no judgment lien; that her prior attachment of the property did not confer upon her a judgment lien or the status of a judgment creditor at the time of entry of judgment within the meaning of the federal law.

3. That the words "judgment creditor" in Internal Revenue Code, Section 6323, mean a creditor who not only obtains a judgment against the debtor, but also a judgment lien upon the judgment debtor's property prior to the filing of a notice of federal tax lien. Miller v. Bank of America , 166 Fed. (2d) 415 [48-1 USTC 9185]; Treas. Reg. Sec. 301.6323-1(a)(2)(i)(b); Revenue Ruling 54-125, 1954-1 Cum. Bull. 282.

4. That the principle of first in time, first in right, governs priorities herein, and the order of priority is first, Metropolitan Life Insurance Company, second, United States of America , third, Victoria Bloch.

5. That Plaintiff is entitled to have its said deed of trust foreclosed upon the land and premises covered by said deed of trust hereinafter described, and the proceeds of sale of said property apply to the payment of the said sum due upon the debt secured by its said deed of trust, counsel fee, cost of this action, and expense of the sale of the property, and should plaintiff be paid in full then the overplus from said sale, if any, shall be paid to defendant, THE UNITED STATES OF AMERICA, upon the sum found due said UNITED STATES OF AMERICA, as aforesaid, to wit the sum of Three Thousand Seven Hundred Sixty-Eight and 68/100 Dollars ($3,768.68) with interest at the rate of six per cent (6%) per annum from September 15, 1958, and should plaintiff be paid in full and the UNITED STATES OF AMERICA paid in full then the over-plus from said sale, if any, shall be paid to defendant VICTORIA A. BLOCH, upon the sums found due said VICTORIA A. BLOCH, as aforesaid, to wit, the sum of $41,177.09 with interest at the rate of seven per cent (7%) per annum from November 13, 1956, any balance thereafter to be paid into Court to await further determination of the rights of the persons entitled thereto.

6. That the claims, interests and liens of defendants TITLE INSURANCE AND TRUST COMPANY and B. H. ANDERSON are inferior and subordinate to the lien of Plaintiff's deed of trust.

7. That said real property be sold according to law by either the sheriff of the County of Los Angeles, State of California, or by a duly appointed and qualified commissioner, and the proceeds applied to the payment of the amount due on said promissory note and deed of trust with interest, disbursements and counsel fees; that if the proceeds of said sale be sufficient to pay the amount so found due plaintiff as aforesaid, the surplus of said proceeds shall be applied to pay the amount due the defendant THE UNITED STATES OF AMERICA; that if the proceeds of said sale by sufficient to pay the amount so found due Plaintiff and so found due Defendant THE UNITED STATES OF AMERICA, the surplus of said proceeds shall be applied to pay the amount due the Defendant, VICTORIA A. BLOCH; that Plaintiff herein waives any claim to a deficiency judgment against any of the defendants herein.

8. That the lien of the Deed of Trust of the Plaintiff is a valid and subsisting lien on said land and premises; and that Plaintiff is entitled to a judgment and decree of this court foreclosing said Deed of Trust and to carry out the foregoing, and also providing that any party to this action may become a purchaser at the sale of said property, said purchase or purchasers to be let into possession of said land and premises so sold under the expiration of the redemption period and that a writ of assistance issue therefor, if necessary, without notice.

9. That the real property ordered to be sold as aforesaid is as follows:

Lot 26 of Tract No. 17465, in the City of Pomona , County of Los Angeles , State of California , as per map recorded in Book 422 Pages 48 and 49 of Maps, in the office of the county recorder of said county."

THAT JUDGMENT AND DECREE BE ENTERED ACCORDINGLY.

 

 

[59-1 USTC 9347]Textile Products, a corporation of New Jersey, Plaintiff v. Shari Steckler Feldan and David Schwartz, individually and trading as Shari Steckler Co., Defendants, United States of America, Intervenor

Superior Court of N. J., Chancery Civ., Essex County , Docket No. C-714-57, 148 A2d 741, 2/27/59

[1954 Code Sec. 6323]

Priority of liens: Attorney's fees.--The Government's tax lien, notice of which was filed prior to the assignment of a claim against the defendant by the taxpayer, was entitled to priority over the claim of the plaintiff-assignee. Allowance of defendant's attorney and court costs out of the sum he owed to the taxpayer denied, since the entire sum assigned was subject to the lien and to allow the costs would reduce the amount subject to the lien.

Rob ert Inlander, 972 Broad Street , Newark 2, N. J., for Plaintiff. Greenbaum & Greenbaum, 60 Park Place , Newark 2, N. J., Arthur M. Greenbaum, for Defendants. Chester A. Weidenburner, United States Attorney, Federal Building, Newark 1, N. J., Stewart G. Pollock, Assistant United States Attorney, for Intervenor.

Opinion

SCHERER, Judge, Superior Court:

Suit was instituted in the Essex County District Court on October 2, 1957 by Textile Products against the defendants, Feldan and Schwartz, individually and trading as Shari Steckler Co., for the sum of $728.30. An answer and counterclaim raising equitable issues was filed by the defendants, and the matter was transferred to this Court by order of the District Court dated November 1, 1957 . While this order is of doubtful validity (R. R. 7:6-1), subsequent proceedings in this Court have rectified any error in the original order of transfer.

Plaintiff sued as an assignee of New Jersey Quilting Company, Inc. for goods sold and delivered. The answer admitted the debt, but by way of counterclaim alleged that on September 17, 1957, fifteen days before the District Court suit was started, a levy had been made by the United States of America upon the defendants for all moneys due from them to New Jersey Quilting Company, Inc. The defendants tendered themselves ready to pay the sum involved, but alleged that they did not know to whom it should be paid, in view of the tax levy. By way of amended answer, they alleged that they had paid $250.00 on account to the plaintiff on September 16, 1957.

When the proceedings were transferred to this Court, a motion was made by the defendant-counterclaimants to join the United States and New Jersey Quilting Company, Inc. as parties defendant to the counterclaim. An order was entered permitting such joinder, but that order, on motion of the United States, was subsequently vacated as to it, and it was given leave, pursuant to R. R. 4:37, to assert its claim by way of a complaint in intervention. This, the government did, and the matter came on for a pretrial conference.

At that time, it was stipulated and agreed that the case be heard on the pleadings and briefs, since there was no dispute as to any material fact, and the question was one of law only. It was conceded that, of the $728.30 originally owed by the defendants to New Jersey Quilting Company, Inc., $250.00 had been paid before the levy, leaving a balance of $478.30 in the hands of the defendants. The government, in its claim for intervention, alleged that it was entitled to the full sum of $728.30-250.00 from Textile Products, representing the money it received from the defendants, and $478.30 from the defendants. The government's theory was that the filing of its lien on October 21, 1955 against New Jersey Quilting Company, Inc., in a sum in excess of $6,300, established its priority under 26 U. S. C. A., Secs. 6321-6323, and was a lien on all of New Jersey Quilting Company's account at the time the $250.00 was paid.

At the pretrial conference, I directed the defendants to pay into court the sum of $478.30 and allowed a counsel fee of $100.00 to counsel for the defendant-counterclaimants, together with taxed costs. This allowance was objected to by the United States and, after examining the law, I am convinced that the allowance was erroneous and must be reversed.

I. THE CLAIM OF THE UNITED STATES

There is no dispute that the claim of the Internal Revenue Service was properly filed on October 21, 1955, as required by 26 U. S. C. A. Sec. 6323. The assignment by New Jersey Quilting Company, Inc. to the plaintiff of the account payable by the defendants, in the sum of $728.30, occurred July 16, 1957.

A federal lien arises on property of a taxpayer when his taxes are unpaid and a demand for payment has been made. 26 U. S. C. A., Sec. 6321. It is valid as against subsequent mortgagees, pledgees, purchasers or judgment creditors, after filing, under Section 6323. The Textile Products' assignment, therefore, is subject to the lien of the government. See Beeghly v. Wilson, 152 Fed. Supp. 726 (D. C., Iowa 1957) [57-2 USTC 9808]; Bank of Nevada v. United States, 251 Fed. (2d) 820 (9 Cir. 1957) [58-1 USTC 9228]. The claim of Textile Products is subordinate to the government's lien whether or not Textile paid a valuable consideration for the assignment. In re Cle-Land Co., 157 Fed. Supp. 859 (D. C., Mass. 1957) [58-1 USTC 9185]; United States v. Phillips, 198 Fed. (2d) 634 (5 Cir. 1952) [52-2 USTC 9421].

A judgment will be entered, therefore, directing that Textile Products pay to the government the $250.00 it received on the New Jersey Quilting Company account and that the defendants pay to the government the sum of $478.30, being the balance due from them to New Jersey Quilting Company, Inc. prior to plaintiff's assignment.

II. COUNSEL FEE AND TAXED COSTS

The allowance of the counsel fee and taxed costs to the defendants, as stated above, must be set aside.

In United States v. Liverpool & L. & G. Ins. Co., 348 U. S. 215, 99 L. Ed. 268 (1955) [55-1 USTC 9136], the court approved the disallowance of an attorney's fee in a garnishment proceeding on the ground that, the government's lien being prior to the garnishment lien, no fees could be properly paid to the attorney prosecuting the garnishment lien because to do so would have the effect of putting that part of the lien ahead of the government's claim, since the latter claim would be reduced by the payment of the fee.

United States v. Worley, 281 U. S. 339, 74 L. Ed. 887 (1930), while not in point here because a federal statute was involved, contains an interesting discussion of the problem. See also, United States v. Ball Constr. Co., 355 U. S. 587, 2 L. Ed. 2d 510 (1958) [58-1 USTC 9327], rehearing den. 356 U. S. 934, 2 L. Ed. 2d 763.

In United States v. Bess, 357 U. S. 51, 2 L. Ed. 2d 1135 (1958) [58-2 USTC 9595], the court held that the transfer of property subject to a federal lien does not affect the lien, it being the very essence of the lien that the property, no matter who holds it, passes cum onere.

Applying these rules, the funds in the hands of the defendants were always subject to the lien of the United States, which was prior to Textile's assignment, and New Jersey Quilting Company, Inc. could not transfer this account, except as encumbered by the lien. Thus, to allow a counsel fee and costs out of the fund is to whittle away that part of the lien which is equal to the amount of the counsel fee and costs. This is interdicted by the cases above cited.

While the result in this case may seem to be unfair to the plaintiff and defendants, since all appear to have acted in good faith, the remedy is in a change in the federal lien statute. This Court must follow the law as enunciated by the United States Supreme Court. In matters of federal taxes, the federal law is supreme, and state law cannot interfere. United States v. Snyder, 149 U. S. 210, 37 L. Ed. 705 (1893).

The judgment, therefore, should contain a provision amending the pretrial order dated February 9, 1959 by deleting therefrom the provisions of paragraph 8.

A judgment should be presented in accordance with these conclusions.

 

 

[58-2 USTC 9664]C. Rallo Contracting Company, Inc., a corporation, (Plaintiff) Respondent v. Thomas J. Blong and Thomas J. Blong, Jr., d/b/a Thomas J. Blong Painting Company, Waggener Paint Company, a corporation, Appellant, Glidden Company, a corporation, United States of America and Gus F. Koehler, District Director of Internal Revenue, St. Louis, Missouri, Respondent

St. Louis Court of Appeals, No. 29,732, 313 SW2d 737, 6/3/58

[1954 Code Sec. 6323]

Lien for taxes: Priorities: Judgment creditor: Taxpayer's property in hands of third party: Ineffective service of notice of garnishment.--A judgment was obtained against a taxpayer who was indebted to the United States for withholding taxes. An execution was issued under the judgment and a notice of garnishment in aid of execution of the judgment was delivered by the sheriff of the City of St. Louis to the bookkeeper in the office of a corporation which held funds belonging to the taxpayer. No officer of the corporation was in the office at the time. Three days after delivery of the notice of garnishment, the Government's notices of tax lien were filed in the office of the Recorder of Deeds of St. Louis County. Held, service of the notice of garnishment on the bookkeeper was not service on an officer of the corporation under state law. It was therefore ineffective to confer jurisdiction over the indebtedness owed by the corporation to taxpayer. Under the circumstances, the judgment creditor could not acquire a valid lien against the indebtedness which was superior to the Government's lien for taxes. Judgment of the Circuit Court, City of St. Louis , in favor of the Government, is affirmed.

Selden Blumenfeld, Blumenfeld & Abrams, 418 Olive Street , St. Louis 2, Mo. , for plaintiff-respondent. Louis M. Kohn, 818 Olive Street , St. Louis , Mo. , for defendant-appellant. Harry Richards, United States Attorney, Rob ert E. Brauer, Assistant United States Attorney, Eastern District of Missouri, Room 402, New Federal Building , St. Louis 1, Mo. , for intervenor-respondent.

Opinion Filed

DOERNER, Commissioner:

This is an interpleader suit to determine the party entitled to a fund paid by plaintiff into the registry of the court below. The facts are relatively simple, and are undisputed.

Plaintiff, C. Rallo Contracting Company, Inc., was the general contractor engaged in the construction of the Bishop DuBourg High School in St. Louis and hired the defendants, Thomas J. Blong and Thomas J. Blong, Jr., doing business as Thomas J. Blong Painting Company, to supply the materials and do painting work on the school. By reason of such painting work, plaintiff became indebted to the Blongs in the amount of $3726.23.

[Execution of Notice of Garnishment]

The claim of appellant, Waggener Paint Company, to the fund arose in this manner: On September 15, 1954 , it recovered a judgment for $5100 in the Circuit Court of the City of St. Louis against the two Blongs, doing business as the Thomas J. Blong Painting Company. An execution was issued under this judgment on September 17th, and garnishment proceedings in aid of the execution were instituted against plaintiff. A notice of garnishment was executed by the sheriff of the City of St. Louis by delivering the same to one Ann Dattilo at the plaintiff's office on September 21, 1954 . No officer of the corporation was in the office at the time the notice of garnishment was delivered by the sheriff.

[Notice of Lien for Taxes]

The claim of the United States of America to the fund arose out of its lien for withholding taxes owed it by the Thomas J. Blong Painting Company. It is admitted that taxes and interest in the total amount of $3335.34 were assessed against the Painting Company on August 12, 1954; that the Blongs were given notice of this assessment, and demand for payment was made on August 20, 1954; and that on September 24, 1954, notices of a tax lien were filed in the office of the Recorder of Deeds of St. Louis County, the county in which both Blongs resided, and in the office of the Recorder of Deeds of the City of St. Louis--the offices of the Thomas J. Blong Painting Company being located in said city. On September 28, 1954, a levy under a certair warrant for distraint issued by the District Director of Internal Revenue was served on plaintiff, C. Rallo Contracting Company, attaching in its hands all property, rights to property, monies, credits and bank deposits in the plaintiff's possession belonging to Thomas J. Blong and Thomas J. Blong, Jr., doing business as Thomas J. Blong Painting Company.

[Interpleader]

Being thus confronted with adverse claims to the money it owed the Blongs, the plaintiff, C. Rallo Contracting Company, filed this action on December 30, 1954, interpleading the Blongs, the District Director of Internal Revenue in St. Louis , the United States of America , the Waggener Paint Company, and the Glidden Company. Motions to dismiss on behalf of the District Director of Internal Revenue in St. Louis and the United States of America were sustained, and the latter then re-entered the case by requesting and being granted leave to intervene. The Glidden Company renounced any claim to the fund, and the Blongs defaulted. By consent, the trial court sustained the bill of interpleader and directed the plaintiff to pay the sum of $3726.23 in its hands into the registry of the court. It allowed counsel for plaintiff the sum of $500 out of the fund as and for attorneys' fees, so that the balance for which the respective claimants contended was the sum of $3226.23. Judgment below was for the United States .

[Service of Garnishment]

The parties are in agreement that the United States obtained a lien on the debt owed by plaintiff to the Blongs when it filed its notices of the liens in the recorders' offices on September 24, 1954. But appellant argues that it was not only a judgment creditor of the Blongs, but that, by reason of the delivery on September 21, 1954, of the notice of garnishment to the plaintiff, it thereby obtained a lien on the indebtedness prior and superior to that of the United States, citing Section 6323, Title 26, U. S. C. A., 1954 Internal Revenue Code, and Miller v. Bank of America, 166 Fed. (2d) 415 [48-1 USTC 9185]. The United States agrees that a judgment creditor who acquired a prior valid lien on the indebtedness would have a right thereto superior to its own, but contends that the service of the notice of garnishment on the plaintiff was invalid and that the appellant therefore did not acquire a lien against the indebtedness.

The applicable statute, Section 525.050 R. S. Mo. 1949, V. A. M. S., provides, in part:

"Notice of garnishment shall be served on a corporation, in writing, by delivering such notice, or a copy thereof, to the president, secretary, treasurer, cashier or other chief or managing officer of such corporation;"

The return of the sheriff of the notice reads as follows:

"No goods, chattels, or real estate found in the City of St. Louis, Mo., belonging to the within named defendants Thos. J. Blong and Thos. J. Blong, Jr., d/b/a T. J. Blong Painting Co., whereon to levy the writ hereto attached and make the debt and costs, or any part thereof; thereupon, by order of the attorney for plaintiff, I executed said writ, in said City of St. Louis, at the hour of 9 o'clock and 20 minutes A. M., on the 21st day of September, 1954, by declaring in writing to C. Rallo Contracting Co., a corporation, by delivering said written declaration, directed to said corporation to Ann Dattilo, Chief Clerk of said corporation, she being in the business office of said corporation and having charge thereof, that I attached in its hands all debts due from it to said defendant as above, and all goods, moneys, effects, rights, credits, chattels, choses in action and evidences of debt, of, belonging to, the said defendant as above, or so much thereof as would be sufficient to satisfy the debt, interest and costs in this suit, and by summoning it in writing as garnishee, and I, at the same time, by said direction, further executed said writ by summoning said corporation as garnishee, by declaring to it in writing, by delivering a summons of garnishment in writing directed to said corporation, to said Ann Dattilo, C. C. thereof, that I summoned it to appear before the Circuit Court for the City of St. Louis, at the Court House in said City, at the return term of said writ to wit: On the 1st Monday of Dec. 1954 next, to answer such interrogatories as might be exhibited and propounded to it by the within named plaintiff.

"The President or other chief officer of said corporation could not be found in the City of St. Louis at the time of service.

"Fee $1.50 Pd.

"N. B. $1.00

"Ret. 12-6-54

" St. Louis , Mo.

"MARTIN L. TOZER

"Sheriff of the City of St. Louis

"By FRED J. MUELLER, Deputy."

[State Requirements for Notice of Garnishment]

While this return described Ann Dattilo as "Chief Clerk" of the plaintiff corporation, that term was never used by either of the witnesses who testified as to her title and her duties. Joseph Rallo, Assistant Secretary of the C. Rallo Contracting Company, Incorporated, testified that she was a bookkeeper whose duties consisted of taking care of the records, checking invoices, handling checks made payable to the firm, and making out checks in payment of invoices, but only when instructed to do so by one of the company's officers. He stated further that she was not an officer of the corporation, and described her as a trusted employee who took charge of the office when he was away from it. The company, he testified, had no one designated as cashier.

Ann Dattilo described her position as that of a bookkeeper-clerk. She testified that when none of the officers of the company were in the office she had charge of it to see that the work progressed and that everything went all right.

The notice of garnishment is the means by which the jurisdiction of the court is established over the property or debt garnished, and is an indispensable prerequisite to jurisdiction over the same. Gates v. Tusten, 89 Mo. 13, 14 S. W. 827; Howell v. Sherwood, 213 Mo. 565, 112 S. W. 50. Since the purpose of the summons, as distinguished from the notice, is to bring the garnishee personally into court, he may, by appearing generally and answering interrogatories, waive any defect as to the service of the summons as to him personally. Fletcher v. Wear, 81 Mo. 524; Marx v. Hart, 166 Mo. 503, 66 S. W. 260. But jurisdiction of the court over the res can neither be waived nor conferred by consent. Gates v. Tusten, supra; State ex rel. Shaw State Bank v. Pfeffle, 220 Mo. App. 676, 293 S. W. 512. Hence the issue presented to us is whether the service of the notice as shown by the sheriff's return was sufficient to confer jurisdiction upon the court of the indebtedness owed by the plaintiff to the Blongs.

Appellant concedes that Ann Dattilo was neither the president, secretary, treasurer, nor cashier of the plaintiff corporation, but argues that Section 525.050, supra, should be liberally construed, and that by the phrase "or other * * * managing officer" the General Assembly meant to include an employee of a corporation whose duties, functions and responsibilities are such that delivery of the notice of garnishment to him would advise the corporation of the garnishment proceedings.

[Jurisdiction over the Debt]

But the purpose of the notice of garnishment, as stated, is to establish the court's jurisdiction over the res. Hence, the authorities hold that a strict compliance with the statutory requirements is a prerequisite to support the court's jurisdiction over the property or debt garnished. Kurre v. American Indemnity Co. of Galveston, Texas, 223 Mo. App. 406, 17 S. W. 2d 685; State ex rel. Shaw State Bank v. Pfeffle, 220 Mo. App. 676, 293 S. W. 512. Appellant cites the former case in support of its argument for a liberal construction of the statute, but this court there said: "* * * even though the garnishee, by appearing, cannot complain of the judgment in so far as it may affect him personally, nevertheless the pertinent statutes must be strictly complied with in order to give the court jurisdiction to proceed, since mere jurisdiction over the person will not carry with it jurisdiction over the res." (l. c. page 687.) And in the Shaw State Bank case, supra, it was held: "A strict compliance with the statutory requirements is a prerequisite to support the court's jurisdiction over the garnishment proceedings." (293 S. W. l. c. p. 516.)

Appellant also cites the case of McAllister v. Pennsylvania Insurance Company, 28 Mo. 214, where the sheriff's return recited that service of the notice of garnishment on two foreign insurance companies had been made by delivery of the notices to one Budd, their agent. The statute, as it then existed, R. C. 1855, 26, p. 246, did not include the latter part of the present 525.050, relating to the service of the notice on foreign insurance companies by delivering it to the superintendent of the insurance department. Pointing out that if a foreign insurance company qualified to do business in Missouri could not be served by delivery of the writ to its authorized agent, as its managing officer in Missouri, there would arise a discrimination between domestic and foreign insurance companies with respect to process, the Supreme Court there held that the return was prima facie sufficient; and that if the garnishees desired to contest the issues as to whether they were foreign insurance companies, whether they were qualified to do business in Missouri, or whether Budd was their authorized agent, they might raise such defenses in their answer.

Section 525.050, supra, is obviously more restrictive than either our former general process statute relating to corporations, 887 R. S. Mo. 1939, since repealed, or our present statute, 506.150(3), R. S. Mo. 1949, V. A. M. S. In both of those sections it was and is provided that, under certain circumstances, the summons may be served by leaving a copy at the corporation's business office "with the person having charge thereof," whereas there is no similar provision in the garnishment statute under consideration. Yet even under 887 R. S. Mo. 1939, it was the rule that a recital in the sheriff's return that the person served was in charge of the business office would not be good if the return contained facts which contradicted the recital. Thus it was held in Coerver v. Crescent Lead & Zinc Corporation, 315 Mo. 276, 286 S. W. 3, that no valid service was obtained where the return stated that service had been made on a watchman who was then in charge of the defendant's business office.

[Service on Principal or Executive Officers]

It will be observed that the persons named in 525.050, supra, upon whom the notice of garnishment may be served, with the possible exception of the word "cashier", are what commonly are regarded as the principal or executive officers of a corporation. Construing the phrase "or other chief or managing officer" in the light of the preceding corporate officers enumerated, it would appear that what was meant by such words was a duly constituted executive officer whose authority and powers are such that he is regularly in control of the operations and business of the corporation. Thus, in R. A. Stanley v. Sedalia Transit Company, 136 Mo. App. 388, 117 S. W. 685, it was said: "A chief officer of a private corporation is one who has charge and control of its business, is its managing officer, and is not one who is charged with the performance of other and subordinate duties." 136 Mo. App. loc. cit. 393. See Oklahoma Fire Ins. Co. v. Barber Asphalt Paving Co., 34 Okla. 149, 125 P. 734, and Central Ohio Emulsion Corporation v. William Whitman Co., 99 Ohio App. 102, 128 N. E. 2d 237. We have read the cases from other states cited by appellant and find that they are not in point because the particular statute in those cases was differently worded and broader than our Section 525.050.

[Ineffective Service of Notice]

Ann Dattilo, upon whom the notice of garnishment was served in this case, may have in a limited capacity been temporarily in charge of the business office of the C. Rallo Contracting Company during the intervals when Mr. Rallo was away from its office, but it is clear from the evidence that she had no corporate powers or authority such as would constitute her as its executive officer regularly in charge of its operations and business. We therefore hold that by the service of the notice of garnishment on her the court did not acquire jurisdiction over the indebtedness owed by the Rallo Company to the Blongs, and that the appellant did not acquire a lien on such indebtedness prior and superior to the lien of the United States.

The judgment of the circuit court should be affirmed, and the Commissioner so recommends.

PER CURIAM:

The foregoing opinion of Doerner, C., is adopted as the opinion of the court.

The judgment of the Circuit Court of the City of St. Louis is accordingly affirmed.

RUDDY, Presiding Judge, Concurs. ANDERSON, Judge, Concurs. CLEMENS, Special Judge, Concurs.

 

 

[57-1 USTC 9382]Joe Lundberg and Don Lundberg, d/b/a Joe Lundberg Construction Company, a partnership, Plaintiff v. Orin G. Mason, a single man, d/b/a "Camas Plumbing, Heating & Electrical", and Isabel Mason, a single woman; The United States of America; Lloyd Bjur and Idamae Bjur, husband and wife; Hugo Bjur and Clara Bjur, husband and wife; and Consolidated Supply Company, a Washington Corporation, Defendants United States of America, Plaintiff in Intervention, Rob ert W. Garver, Jr., Intervenor and Trustee in Bankruptcy of the Estate of Orin G. Mason. Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife, Plaintiffs v. Orin G. Mason, a single man, d/b/a "Camas Plumbing, Heating & Electrical", and Isabel Mason, a single woman, Defendants, Leo J. McEneny, Garnishee Defendant

Superior Court, State of Washington, Clark Co., No. 31050, 11/26/56

[1954 Code Sec. 6323]

Lien for taxes: Amounts due from debtors of bankrupt taxpayers.--Taxpayers, engaged in plumbing, heating, and electrical work, were indebted to the United States for withholding and FICA taxes and interest. A contractor who owed the taxpayers amounts on subcontract work deposited such amounts in court on account of claims to the funds by other creditors. The latter also caused a writ of garnishment to be served to another of taxpayers' debtors. The court holds that the United States has valid liens against both funds, and directs that any remaining amounts be applied to the other creditors as their interests appear.

Ned Hall 1105 Broadway Street, Vancouver, Wash., for Consolidated Supply Co. Knapp & O'Dell, Baz Building, Camas, Wash., for Lloyd Bjur, Idamae Bjur, Hugo Bjur, Clara Bjur. Elliott, Lee, Carney & Thomas, 555 Dexter Horton Building , Seattle 4, Wash. , for Joe Lundberg et al., plaintiffs. Orin & Isabel Mason d/b/a Camas Plumbing, Heating & Electric, c/o Rob ert W. Garver, Jr., Camas, Wash., for defendants. Rob ert W. Garver, Jr., Camas, Wash. , for Trustee of estate of Orin G. Mason, bankrupt. Charles P. Moriarty, United States Attorney, Thomas R. Winter, Special Assistant to the Regional Counsel, Internal Revenue Service, for U. S.

Findings of Fact and Conclusions of Law

LANGSDORF, Judge:

The above-entitled actions having come on regularly for hearing on the 2d day of November, 1956, upon Motion for Summary Judgment by the United States of America, Plaintiff in Intervention, the plaintiffs Joe Lundberg and Don Lundberg, d/b/a Joe Lundberg Construction Company, a partnership, appearing by Elliott, Lee, Carney & Thomas, their attorneys, but not being represented in court; the defendant Orin G. Mason, a single man, d/b/a Camas Plumbing, Heating & Electrical, and Isabel Mason, a single woman, not appearing; Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife, appearing by Knapp & O'Dell, their attorneys, but not being represented in court; defendant Consolidated Supply Company, a Washington corporation, appearing by and being represented in court by its attorney, Ned Hall; Leo J. McEneny, garnishee defendant, appearing by and being represented in court by Eugene F. Harris, his attorney; Rob ert W. Garver, Jr., intervenor and Trustee in Bankruptcy of the estate of Orin G. Mason, appearing per se; and the United States of America, plaintiff in intervention, appearing by Charles P. Moriarty, United States Attorney for the Western District of Washington, and Thomas R. Winter, Special Assistant to the Regional Counsel, Internal Revenue Service, and being represented in court by said Thomas R. Winter, and the Court having read the points and authorities submitted by the United States in support of its motion, having heard the argument of counsel, and having jurisdiction of the parties to the above-entitled actions, which were consolidated for hearing, and having jurisdiction of the subject matter of the actions, and the Court having granted the motion of the United States for summary judgment, and the Court being fully advised in the premises, makes the following

Findings of Fact

I. That plaintiffs Joe Lundberg and Don Lundberg now are and at all times material herein were residents of King County , Washington , and are partners doing business under the firm name and style of Joe Lundberg Construction Company, having filed their certificate of assumed name with the Clerk of the Superior Court for the County of Clark, Washington. That Orin G. Mason is a single man and Isabel Mason is a single woman, both residents of Clark County , Washington , and Orin G. Mason and/or Orin G. Mason and Isabel Mason are doing business as Camas Plumbing, Heating and Electrical. That Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife, are all residents of Clark County , Washington .

II. That the intervenor United States of America is a corporation sovereign and body politic, and the intervention in this action was authorized by the Commissioner of Internal Revenue for the United States Treasury Department and was directed by the Attorney General of the United States .

III. That Rob ert W. Garver, Jr., is now and at all times material herein was the duly appointed and qualified Trustee of the estate of Orin G. Mason, bankrupt, by order dated July 1, 1955, and his complaint in intervention was filed in the above-entitled actions after leave of court first had and obtained. That Orin G. Mason, defendant, was adjudicated a bankrupt in the United States District Court for the Western District of Washington, Southern Division, on or about June 5, 1955.

IV. That the defendants hereinafter referred to as the taxpayers, Orin G. Mason and Isabel Mason, doing business as Camas Plumbing, Heating and Electrical, 322 Cedar Street, Camas, Washington, employed divers individuals in the operation of their business, to each of whom wages were paid by them on account of their employment during the second, third and fourth quarters of 1954. Withholding and social security taxes were duly assessed against them, the balances of which and other pertinent facts are as follows:

                                                                
* Notice of Federal Tax Lien was filed with the Auditors of Clark County, Washington, and 

King 
County
, 
Washington

.

V. That as a result of work performed by the taxpayer Orin G. Mason, pursuant to a sub-contract between said Joe Lundberg Construction Company and the taxpayers, Orin G. and Isabel Mason, doing business as Camas Plumbing, Heating and Electrical, entered into and performed in Clark County, Washington, said Joe Lundberg Construction Company became indebted to the taxpayers in the sum of $1,452.19.

VI. That on April 6, 1955, pursuant to Sections 6331, et seq., of the 1954 Internal Revenue Code, the Director of Internal Revenue for the United States caused a levy to be served on Joe Lundberg Construction Company by Internal Revenue Agent D. K. Rob ertson, covering tax, penalty and interest due the United States on its assessments, said levy being as of that date in the sum of $2,047.58.

VII. That on March 18, 1955, the Joe Lundberg Construction Company was served with a writ of garnishment by Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife, being Clark County Superior Court No. 31050, by which writ of garnishment the Bjurs claimed all of the funds in the possession of the Joe Lundberg Construction Company.

VIII. That the Consolidated Supply Company is an Oregon corporation, duly authorized to conduct business in the state of Washington , and that it has paid all license fees due the State of Washington .

IX. That prior to the 21st day of May, 1954, the defendant Orin G. Mason, a single man, doing business as Camas Plumbing, Heating and Electrical, was financially unable to purchase the necessary materials to complete his sub-contract on the Camas Sewage Treatment Plant with the plaintiff herein in the usual course of business; that the plaintiff herein, the prime contractor, was insisting he perform the contract, and this defendant refused to deliver further material unless funds owing and to be owing the sub-contractor from the prime contractor were assigned directly to this defendant to pay for said material; that the defendant Orin G. Mason thereupon agreed to assign to this defendant and did assign moneys due and to become due him from the prime contractor to pay for plumbing material required to complete the said sub-contract; that the prime contractor was notified of the assignment; that thereafter and on the said 21st day of May, 1954, said prime contractor agreed on account of said assignment to make this defendant a payee on all checks issued; that this defendant thereafter furnished materials relying on the express agreement of both parties aforesaid and was paid in such manner all moneys due except the sum of $651.79. That the assignment consisted of a letter addressed to the Consolidated Supply Company, Post Office Box 1771, Portland 7, Oregon , dated May 21, 1954, and reading as follows:

"In consideration of your extending credit to Camas Plumbing & Electric Co. (Orin Mason), Camas, Washington, for plumbing material required for Camas Sewage Treatment Plant, we hereby agree to make all checks in payment of contract to Camas Plumbing & Electric Co. and Consolidated Supply Co."

That no notice of the assignment was filed with the Secretary of State of the State of Washington , as provided by Sections 63.16.010, 63.16.020, and 63.16.030 of the Revised Code of Washington.

X. That on or about March 27, 1955, Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife, caused to be served on the defendant Leo J. McEneny a writ of garnishment in the above-entitled actions, claiming an indebtedness against the taxpayer-defendants in the sum of $1,996.75.

XI. That on or about March 29, 1955, pursuant to Sections 6331, et seq., of the 1954 Internal Revenue Code, the Director of Internal Revenue for the United States caused a levy to be served on Leo J. McEneny covering taxes, penalties and interest due the United States on the first lien referred to in paragraph IV above, the balance on said lien as of that date being in the sum of $673.55.

XII. That on or about April 15, 1955, garnishee-defendant Leo J. McEneny filed his amended answer to the garnishment and in response to the levy of the United States as aforesaid, alleging as follows:

"* * * that the garnishee was served with a writ of garnishment in the above entitled action; that at said date he was indebted to the defendant, Orin G. Mason, in the sum of $413.39; and upon the date of service of said writ of garnishment on the garnishee, that the garnishee did not have, and does not now have, any effects of the defendants in his possession or under his control; that after the service of said writ of garnishment on the garnishee, to-wit, March 29th, 1955, there was served on the garnishee a notice of levy for internal revenue taxes due the United States Government by Orin and Isabel Mason, d/b/a, Camas Plumbing, Heating and Electrical Co., in the sum of $673.55; that to said notice of levy was attached 'Notice of Federal Tax Lien under Internal Revenue Laws' dated March 25th, 1955, which was recorded in the auditor's office of Clark County on March 28th, 1955; that thereafter the garnishee had to replace certain materials used by Orin G. Mason in certain jobs performed by Mason for the garnishee in the sum of $48.38, and the garnishee is now holding the sum of $365.01 subject to the order of this Court, the lien and levy of the Bureau of Internal Revenue of the Federal Government and the order of the referee and trustee in bankruptcy in the bankruptcy proceedings of Orin G. Mason; * * *"

XIII. That the garnishee-defendant Leo J. McEneny is now holding said sum of $365.01 subject to the order of this Court, and the plaintiffs Joe Lundberg and Don Lundberg, d/b/a Lundberg Construction Company, have deposited with the registry of this Court the sum of $1,452.19, being the total amount of the plaintiffs' indebtedness to the defendant-taxpayers, and have waived any claim to said funds, except and unless the Court awards to the plaintiffs costs, disbursements and/or attorneys' fees therefrom.

XIV. That the sum of $50.00 is a reasonable attorney's fee to be allowed the garnishee-defendant for making answer to the writ of garnishment of the plaintiffs Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife.

And from the foregoing Findings of Fact, the Court makes the following

Conclusions of Law

I. That the plaintiffs Joe Lundberg and Don Lundberg, d/b/a Joe Lundberg Construction Company, a partnership, are entitled to have adjudged that they have completely discharged their obligation to the defendants Orin G. Mason, a single man, d/b/a Camas Plumbing, Heating and Electrical, and Isabel Mason, a single woman, and that none of the defendants and intervenors and/or other parties to the action are entitled to recover from the plaintiffs any amount or sum whatsoever, other than, or in addition to the fund of $1,452.19 heretofore deposited into the registry of this Court in the interpleader action.

II. That the garnishee defendant Leo J. McEneny is entitled to have adjudged that he has completely discharged his obligation to the said defendants Orin G. Mason, a single man, d/b/a Camas Plumbing, Heating and Electrical, and Isabel Mason, a single woman, and that none of the defendants, intervenors and/or other parties to this action are entitled to recover from said plaintiffs any amount or sum other than, and in addition to the funds of $365.01 being held by said garnishee defendant subject to the order of this Court.

III. That the garnishee defendant Leo J. McEneny, having answered the writ of garnishment of the garnishee plaintiffs Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife, is entitled to have judgment against said garnishee plaintiffs in the sum of $50.00.

IV. That the plaintiffs Joe Lundberg and Don Lundberg, d/b/a Joe Lundberg Construction Company, a partnership, having answered the writ of garnishment of the garnishee plaintiffs Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife, is entitled to have judgment against said garnishee plaintiffs in the sum of $50.00.

V. That the United States of America, intervenor, is entitled to have adjudged that it has valid and subsisting liens against the funds paid into the registry of this Court as set forth in paragraph I, above, and that it is entitled to have adjudged that it has valid liens against the funds held by the garnishee defendant Leo J. McEneny as set forth in paragraph II, above; that the total sum due on said liens is in the amount of $1,771.09, plus interest as provided by law from 8-31-56 until paid, said interest to be computed by multiplying the sum of $1,576.21 by .00016 for each day after 8-31-56 until paid; that the said liens are prior in right and in time to the liens and claims of any and all of the other plaintiffs, defendants, intervenors, and other parties to this action and prior to any judgments for them to be entered herein; that it is entitled to have said liens paid out of said total funds of $1,817.20, as is necessary to pay said liens in full, plus interest as aforesaid.

VI. That the defendant Consolidated Supply Company is entitled to have judgment paid to it, up to the sum of $651.78, any funds remaining after payment of the liens of the United States in full and after the payment of costs and attorneys' fees as adjudged in the action.

Judgment

The above-entitled actions having come on regularly for hearing on the 2d day of November, 1956, upon Motion for Summary Judgment by the United States of America, Plaintiff in Intervention, the plaintiffs Joe Lundberg and Don Lundberg, d/b/a Joe Lundberg Construction Company, a partnership, appearing by Elliott, Lee, Carney & Thomas, their attorneys, but not being represented in court; the defendant Orin G. Mason, a single man, d/b/a Camas Plumbing, Heating & Electrical, and Isabel Mason, a single woman, not appearing; Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife, appearing by Knapp & O'Dell, their attorneys, but not being represented in court; defendant Consolidated Supply Company, a Washington corporation, appearing by and being represented in court by its attorney, Ned Hall; Leo J. McEneny, garnishee defendant, appearing by and being represented in court by Eugene F. Harris, his attorney; Rob ert W. Garver, Jr., intervenor and Trustee in Bankruptcy of the estate of Orin G. Mason, appearing pro se; and the United States of America, plaintiff in intervention, appearing by Charles P. Moriarty, United States Attorney for the Western District of Washington, and Thomas R. Winter, Special Assistant to the Regional Counsel, Internal Revenue Service, and being represented in court by said Thomas R. Winter, and the Court having read the points and authorities submitted by the United States in support of its motion, having heard the argument of counsel, and having jurisdiction of the parties to the above-entitled actions, which were consolidated for hearing, and having jurisdiction of the subject matter of the actions, and the Court having granted the motion of the United States for summary judgment, and the Court having made and entered its Findings of Fact and Conclusions of Law herein and being fully advised in the premises, now therefore

IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the liens of the United States of America, intervenor, are valid and subsisting liens against the $1,452.19 paid into the registry of this Court and against the sum of $365.01 being held by Leo J. McEneny subject to the order of this Court; that the total sum due on said liens is in the amount of $1,771.09, plus interest from 8-31-56 until paid, said interest to be computed by multiplying the sum of $1,576.21 by .00016 for each day after 8-31-56 until paid.

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that the plaintiffs Joe Lundberg and Don Lundberg, d/b/a Joe Lundberg Construction Company, a partnership, have completely discharged their obligation to the defendants Orin G. Mason, a single man, d/b/a Camas Plumbing, Heating and Electrical, and Isabel Mason, a single woman, and that none of the defendants, intervenors or other parties to the actions are entitled to recover any amount or sum whatsoever, other than as against the fund of $1,452.16 paid into the registry of this Court in this interpleader action.

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that the garnishee defendant Leo J. McEneny has completely discharged his obligation to the defendants Orin G. Mason, a single man, d/b/a Camas Plumbing, Heating and Electrical, and Isabel Mason, a single woman, and that none of the defendants, intervenors and other parties to this action are entitled to recover from the said plaintiffs any amount or sum, other than as against the funds of $365.01 being held by said garnishee defendant subject to the order of this Court herein.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the garnishee defendant Leo J. McEneny have judgment against the garnishee plaintiffs Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife, in the sum of $50.00.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the plaintiffs Joe Lundberg and Don Lundberg, d/b/a Joe Lundberg Construction Company, a partnership, have judgment against the garnishee plaintiffs Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife, in the sum of $50.00.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the garnishee defendant Leo J. McEneny now pay into the registry of this Court for distribution to the United States of America and as provided herein, said sum of $365.01, which sum makes a total on deposit in the registry of this Court of $1,817.20; that said sum be disbursed as follows:

1. To the United States of America in the sum of $1,771.09, plus interest to be computed by multiplying the sum of $1,576.21 by .00016 for each day after 8-31-56 until paid, and that any balance remaining from said fund be paid in the following order of priority:

(a) Costs to the plaintiffs Joe Lundberg and Don Lundberg, d/b/a Joe Lundberg Construction Company, a partnership, in the total sum of $9.00, and to the clerk a judgment fee cost of $6.00; and $6.00 interpleader fee.

(b) To the plaintiffs Joe Lundberg and Don Lundberg, d/b/a Joe Lundberg Construction Company, a partnership, and to the garnishee defendant Leo J. McEneny, to pro-rate equally and to apply on their judgments entered herein against the garnishee plaintiffs Lloyd Bjur and Idamae Bjur, husband and wife, and Hugo Bjur and Clara Bjur, husband and wife.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the writs of garnishment and levies served on the plaintiffs Joe Lundberg and Don Lundberg, d/b/a Joe Lundberg Construction Company, a partnership, and on the garnishee defendant Leo J. McEneny be released and discharged, and said garnishee defendant be relieved of any further liability or duty thereunder.

 

 

[56-2 USTC 9880]Providence Thrift Corporation v. Moses Mickler et al.

R. I. and Providence Plantations, Superior Court, Eq. No. 24822, 7/26/56

[1939 Code Sec. 3671--changed in 1954 Code Sec. 6322; 1939 Code Sec. 3672--substantially similar to 1954 Code Sec. 7207]

U. S. tax liens: Certificates of stock: Superiority over attaching creditor's lien.--A creditor's lien on shares of stock owned by taxpayer, certificates for which were in the possession of a second satisfied creditor, was inferior to the lien of the United States for unpaid taxes. The assessment list was received by the Collector on February 6, 1953 . The law action of the complainant-creditor was commenced on March 23, 1953, by attachment of the stock on the same day, and judgment was recovered on March 16, 1955.

Eugene J. Laferriere, for Providence Thrift Corp. Peter Palumbo, Jr., for Moses Mickler. Tillinghast, Collins and Tanner, for Rhode Island Hospital Trust Co. Joseph Mainelli, United States Attorney, Samuel S. Tanzi, Assistant United States Attorney, for United States.

Rescript

FROST, Presiding Judge:

Heard on the question of priority of Internal Revenue lien.

[The Facts]

On September 22, 1955, Providence Thrift Corporation, a Rhode Island corporation, filed a bill of complaint against Moses Mickler, alias, and North American Acceptance Corporation, a Pennsylvania corporation, in aid of a judgment recovered by it on March 16, 1955, against said Mickler in the sum of $17,930.50 in a law action numbered 127,227, in the files of this court instituted on March 23, 1953. The bill alleges that the writ in said law action ordered the attachment of certain shares of the capital stock of North American Acceptance Corporation standing in the name of said Moses Mickler; that no part of the judgment hereinbefore mentioned has been paid; that the complainant does not have possession of the certificates representing the said shares of the capital stock of said North American Acceptance Corporation standing in the name of Moses Mickler and that they are in the hands and possession of said Moses Mickler. Complainant prays that the said Moses Mickler be ordered to turn over to it or to an officer of the court the said shares of stock and that they be sold to satisfy the said judgment.

Respondent Moses Mickler filed an answer to the said bill wherein he stated that the said certificates of stock were in the possession of Rhode Island Hospital Trust Company, a banking institution of this state; that they were held by it as collateral security for a loan made by it to him; that said loan had been paid in full; that the said certificates were still held by said Rhode Island Hospital Trust Company because of a lien imposed on said certificates by John A. O'Connell, District Director of Internal Revenue, on behalf of the United States of America; that said lien was placed prior to the date of the recovery of the said judgment.

Thereafter said Rhode Island Hospital Trust Company and said John A. O'Connell, District Director of Internal Revenue, were made party respondents to the said bill of complaint.

On January 27, 1956, Rhode Island Hospital Trust Company filed an answer wherein it stated that it had held since July 23, 1952, 4910 shares of the Class A Capital stock of the North American Acceptance Corporation standing in the name of Moses Mickler; that the loan to Mickler to secure which the said certificates of stock had been deposited with it had been paid but that on February 6, 1953, it had been notified that John A. O'Connell, District Director of Internal Revenue, claimed a lien on behalf of the United States for taxes alleged to be owed by said Moses Mickler; that it asked that this complainant, the said Moses Mickler and the said John A. O'Connell in his said capacity be required to interplead and adjust among themselves their several rights in and to the said stock.

Thereafter John A. O'Connell, District Director of Internal Revenue, filed his answer wherein he stated that Moses Mickler was indebted to the United States of America for income taxes for the years 1942 to 1946, inclusive, in the sum of $164,709.47; that the United States through him had imposed liens upon the said shares of stock, which said liens were filed with the city clerk in the city of Cranston on February 6, 1953, and on the same day with the recorder of deeds in the city of Providence; that the claim of the United States was entitled to priority over any claim which the complainant corporation had against said Moses Mickler.

On May 9, of this year the parties to the bill were heard and testimony taken and thereafter authorities submitted.

The amounts owed by Moses Mickler to the Providence Thrift Corporation and to the United States of America have been determined. The complaint herein and respondent, John A. O'Connell, District Director of Internal Revenue, assert liens upon an asset, to wit, 4910 shares of stock belonging to Mickler but now in the possession of respondent, Rhode Island Hospital Trust Company.

Upon the evidence presented two questions present themselves: Has the lien of the United States been established according to law, and if it has which party has priority over the other?

The complainant contends that the United States has failed to comply with the requirements of law incident to the filing of liens, in that notice was not served upon all persons, firms or corporations holding or controlling any property belonging to and standing in the name of the respondent, Moses Mickler. The government's lien arose by reason of Mickler's unpaid taxes on March 17, 1952, when the District Director received the assessment list for the years 1942, 1943, 1944 and 1945 (Exhibit "1"), and on October 20, 1952, when the assessment list for 1946 was received.

26 U. S. C. A. (I. R. C. 1939) Section 3671

Thereafter demand was made upon Moses Mickler and on February 6, 1953, notices of tax liens were filed with the Recorder of Deeds in the City of Providence , the City Clerk of the City of Cranston and in the office of the Clerk of the United States District Court in Providence . Notices were also given to various other persons holding assets of Moses Mickler including the Rhode Island Hospital Trust Company, a respondent herein. (Exhibits "2", "3" and "4"). It does not appear that notice of lien was given to North American Acceptance Corporation, at its principal place of business in Bryn Mawr, Pennsylvania, and that is the particular reason for complainant's objection that respondent John A. O'Connell has not complied with the requirements of the law in reference to notice of lien. It seems to the Court that notice to the corporation under the circumstances presented was not necessary. The shares of stock owned by Moses Mickler and represented by a certificate for 4910 shares of the Class A Capital stock were attached by the complainant herein (Law Number 127227), and restraining orders entered against Moses Mickler and the corporation which issued the stock and notice of lien were given to Rhode Island Hospital Trust Company, the actual holder of the certificates.

[Opinion]

Chapter 118, Section 13, of the General Laws of Rhode Island , 1938, provides that,

"No attachment or levy upon shares of stock for which a certificate is outstanding shall be valid until such certificate be actually seized by the officer making the attachment or levy, or be surrendered to the corporation which issued it, or its transfer by the holder be enjoined. * * *"

This certificate of stock was property for attachment purposes and the situs of the stock was where the stock was when the certificate was located. Westerman v. Gilbert, 119 Fed. Supp. (U. S. D. Court, District of Rhode Island, 1953). The Court therefore finds that the lien of the United States has been established in accordance with law.

26 U. S. C. A. (I. R. C. 1939) Section 3672

The last assessment list was received by the collector on October 20, 1952, and notices of tax lien filed on February 6, 1953. The law action of the complainant (Law Number 127,227) was commenced on March 23, 1953, by attachment of stock on the same day and judgment recovered on March 16, 1955. The United States clearly has priority over the complainant herein. United States v. Security Trust & Savings Bank, Executor, et al., 340 U. S. 47 (1950) [50-2 USTC 9492].

In the opinion of the Court upon the evidence produced the United States has a valid claim for taxes against Moses Mickler and a valid prior lien against 4910 shares of the Class A capital stock of North American Acceptance Corporation now in the custody of Rhode Island Hospital Trust Company of Providence.

In its answer Rhode Island Hospital Trust Company has prayed that it be directed to sell the said shares of stock, take therefrom its taxes costs and a reasonable counsel fee.

The Court sees no objection to this course if respondent, John A. O'Connell in his said capacity agrees, otherwise the certificates of stock should be delivered to the said John A. O'Connell and by him sold and the proper credit given to Moses Mickler.

The Rhode Island Hospital Trust Company through no fault of its own was involuntarily placed in the position of a stakeholder and because of that and the necessity for legal counsel is entitled to a reasonable counsel fee.

A decree on the basis of the foregoing may be presented.

 

 

[56-2 USTC 9668]Huron Electric Supply Company, a Michigan Corporation, Plaintiff v. George Everson, d/b/a Everson Electric and Neon Company, Croswell-Lexington Rural Agricultural School District, a public Corporation, and Lehman M. Dunn, d/b/a Dunn Construction and Engineering Company, Defendants

Circuit Court, St. Clair Co., Mich., 3/30/56

[1939 Code Sec. 3672(a) and (1)--similar to 1954 Code Sec. 6323(a) and (1), respectively]

Collection: Lien for taxes: Validity against surety.--A school district issued school bonds for the purpose of erecting a new school and deposited the proceeds in a special bank account. The surety for a contractor who was awarded an electrical work contract became subrogated to his rights by paying claims of labor and material men participating in the job. The court ruled that the lien of the surety, to the extent of a withheld portion of the contract price due to the contractor, was superior to both the lien of a judgment creditor based upon goods sold the contractor on a different project and Federal tax liens for unpaid withholding and F. I. C. A. taxes incurred in connection with wages paid by the contractor.

[1939 Code Sec. 3672(a) and (1)--similar to 1954 Code Sec. 6323(a) and (1), respectively]

Collection: Lien for taxes: Validity against judgment creditor: Notice.--A lien of a judgment creditor, against the contractor, came into existence in August, 1952. Federal tax liens of March and September, 1952, were filed in the county where the contractor resided, but not in the county where the school fund special deposit was located. Since the notice of lien of the Government never fulfilled the requirements of the Federal and Michigan statutes, the lien of the judgment creditor was superior to the Federal tax liens.

John W. Vogel, 516 Water St. , Port Huron , Mich. , for plaintiff. Kyle C. Lomason, Fred W. Kaess, United States Attorney and John L. Owens, Assistant United States Attorney, 813 Federal Building, Detroit 26, Mich., for defendant.

Opinion

KANE, Circuit Judge:

This is an equity action involving the determination of the priority of certain conflicting liens asserted by the Huron Electric Supply Company, Plaintiff, and Western Casualty and Surety Company and the United States Government, respectively, as intervenors, against funds of the Croswell-Lexington Rural Agricultural School District, one of the Defendants, by reason of the indebtedness of Defendant Everson to said claimants. In each instance, the claim is against funds segregated by the School District for the payment of its indebtedness to the Defendant Everson.

[Facts]

This matter was submitted to the Court on an Agreed Statement of Facts which set forth the following situation: The School District issued school bonds for the purpose of erecting a new school and deposited the proceeds in a special account in the State Bank of Croswell, Sanilac County , Michigan . Defendant Everson of the City of Port Huron , St. Clair County, was awarded a contract for certain electrical work; said contract required payment of the proceeds thereof to labor and material men participating in said job before payment to Everson. As was required by the aforementioned contract, Everson filed a labor and material bond furnished by the Western Casualty and Surety Company; said bond required the payment of labor and material used in the construction of the school building in the event that Everson did not pay said claim and contained an assignment of all proceeds of said contract to Western Casualty and Surety Company subject to payment of labor and material men.

Everson neglected to pay withholding and F. I. C. A. taxes totaling $722.06 incurred in connection with wages paid on the School District project and Federal tax liens were filed with the Register of Deeds for St. Clair County in March, 1952, and in September, 1952. In September, 1952, the Government served a notice of levy on the School District for Federal taxes due from Everson in the amount of $2,737.60.

On July 18, 1952, the Huron Electric Supply Company obtained a judgment against Everson in the amount of $2,733.58 for goods sold Everson on a different project.

On August 12, 1952, when the school was completed, there was on hand in a retained fund of the School District the sum of $1,265.00 for work done under the aforementioned contract together with an additional $798.31 representing so-called extras for work done by Everson but not in any way covered by the aforementioned contract or bond. At this time, however, Everson had failed to pay material suppliers who thereafter perfected claims against the surety, Western Casualty and Surety Company, in the amount of $1,270.76.

[Priority of Lien of Surety]

On August 19, 1952, Huron Electric Supply Company instituted this action and obtained an injunction restraining the School District from making any further payment to Everson.

On September 12, 1952, the Government served upon the School District a levy against Everson in the amount of $4,623.60 which included the aforementioned liens of March and September, 1952, which had been filed in the Register of Deeds Office in St. Clair County. At no time were the liens here concerned filed with the Register of Deeds for Sanilac County .

On November 10, 1953, the United States filed its intervenor's Bill of Complaint claiming the entire amount now in controversy.

The Western Casualty and Surety Company which had paid the aforesaid material claims in the amount of $1,270.76 claimed an assignment of all money retained by the School District by virtue of the terms of the bond application and building contract. In this action, the Huron Electric Supply Company has recognized the superiority of the surety's claim as to funds retained under the aforementioned contract and bond and claims only the $798.31.

It is the opinion of the Court that the labor and material suppliers had rights to the School Board funds held under the contract which were prior to the rights of any other person, firm or entity. By the terms of the building contract and bond application, the rights of said labor and material suppliers as they came into being were assigned to the intervening surety company. Without question, the lien of the Western Casualty and Surety Company to the extent of $1,265.00 due under the contract is a senior lien with respect to both the claims of the Plaintiff, Huron Electric Supply Company, and the United States Government.

[Filing of Notice to Judgment Creditor]

The more difficult question to be disposed of by this Court is whether the alleged United States Government tax lien is superior to that of the Huron Electric Supply Company.

In determining superiority of liens, due regard must be given to the law under which they arise. The lien of Huron Electric Supply Company as a judgment creditor came into existence on August 22, 1952 , by the institution of this action and the service of the injunction on that day impounding the funds. (Saginaw County Savings v. Duffield, 157 Mich. 522 (1909); Bankers Trust Company v. Humber, 263 Mich. 426 (1933).) The U. S. tax lien came into existence upon the receipt by the Collector of the assessment list and a demand duly made upon the taxpayer. U. S. C. A., Tit. 26, Sec. 3670, Sec. 3671. However, U. S. C. A., Tit. 26, Sec. 3672, further provides "Such lien shall not be valid as against any . . . judgment creditor until notice thereof has been filed by the Collector--in accordance with 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 provided for the filing of such notice. . . .".

The State of Michigan under M. S. A. Sec. 7.751 provides for the filing of a notice of lien on either realty or personalty in the office of the Register of Deeds in the county where the property is situated.

"That whenever the collector of internal revenue for any district in the United States, or any tax collecting officers of the United States having charge of the collection of any tax payable to the United States, shall desire to acquire a lien in favor of the United States for any tax payable to the United States against any property, real or personal, within the state of Michigan pursuant to section three thousand one hundred eighty-six (3186) of the revised statutes of the United States, he is hereby authorized to file a notice of lien, setting forth the name and the residence or business address of such taxpayer, the nature and the amount of such assessment, and a description of the land upon which a lien is claimed, in the office of the register of deeds in and for the county or counties in Michigan in which such property subject to such lien is situated; and such register of deeds shall, upon receiving a filing fee of fifty (50) cents for such notice, file and index the same in a separate book, entitled 'Record of United States Tax Liens,' indexing the same according to the name of such taxpayer as stated in the notice; all in pursuance of said section three thousand one hundred eighty-six (3186) of the revised statutes of the United States."

In March, 1952, the Government filed such a notice of lien in the office of the Register of Deeds of St. Clair County together with an additional notice of lien filed on September 10, 1952 , at the same office. At no time were these liens filed in Sanilac County .

The property in question was a debt owing from the School District to Everson. Although in the ordinary case, the situs of the debt is the place in which the creditor is resident, such is not the case here. The debt, by the Agreed Statement of Facts, and likewise as a matter of fact, was the debt of a municipal corporation deposited in a special, designated account for the payment of the building liabilities, one of which was Everson's claim. The location of a funded debt is in the place where the holder of the fund resides. (Anno. 30 A. L. F. 2d 253, Sec. 18, and cases there cited.)

[Conclusions]

Thus it is the Court's opinion that the notice of lien of the Government never fulfilled the requirements of the statutes for the very reason that it was not filed in the place where the property was located.

The Court finds that the lien of the intervenor, Western Casualty and Surety Company, is the senior lien and to them should be paid the sum of $1,265.00 and that the lien of the Huron Electric Supply Company, as a judgment creditor, to the extent of $798.31 is superior to that of the U. S. Government.

A Decree in keeping with the above may be presented, the same being without costs inasmuch as this matter is of a public nature.

 

 

[56-2 USTC 9623]Lincoln Savings Bank of Brooklyn v. L. Blau & Sons, Inc.

N. Y. Supreme Court, Special Term, Part I, Queens County, 148 NYS2d 208, 12/8/55

[1939 Code Sec. 3672--similar to 1954 Code Sec. 6323]

Lien for taxes: Priority of state taxes: Judgment creditor: Assignment for benefit of creditors.--Federal tax liens had priority over claims of the State of New York under tax warrants filed prior to the date the federal tax liens became effective. The State of New York was not a "judgment creditor" entitled to priority within the meaning of 1939 Code Sec. 3672 since it was not claiming through a judgment of a court of record. Moreover, the taxpayer-debtor had made a general assignment for the benefit of creditors. Therefore, under such circumstances, debts due the United States have priority and are to be paid first by reason of Sec. 191 of Title 31, United States Code.

Corner, Weisbrod, Froeb & Charles, 32 Court Street, Brooklyn , N. Y., for plaintiff. Gerald H. Ullman, 120 Broadway, New York 5, N. Y., for defendant. Krause, Hirsch, Levin & Heilpern (Bernard Wexler, of counsel), for Arnold D. Roseman, Assignee for Benefit of Creditors of L. Blau & Sons, Inc. A. Harold Frost, 300 Fifth Avenue, New York, N. Y. (Marvin V. Ausubel, of counsel), for Burns Bros. George Green, 11 Park Place, New York, N. Y., for Richard Shutkind. Leonard P. Moore, United States Attorney for the Eastern District of New York (William A. Dubrowski, Assistant U. S. Attorney), for U. S. Joseph M. Gleason, 101 Willoughby Street, Brooklyn, N. Y., for New York Telephone Co. Jacob K. Javits, Attorney General of the State of New York (George Grau, Assistant Attorney General), for Industrial Commissioner of New York. Rob ert J. Blum, 295 Madison Avenue , New York , N. Y. (Max J. Herman, of counsel), for K. Kohnstamm. Gerald H. Ullman, 120 Broadway, New York 5, N. Y., for Estelle R. Ullman. Herman Elegant, 16 Court Street, Brooklyn, N. Y., for Henry Gallop & Textile Flame-Proofing Co. Harry Gutman, 121 East 87th Street , Brooklyn 36, N. Y., for Target Super Service Co.

RITCHIE, Judge:

The second mortgagee has moved to confirm the report of a referee as to the disposition of surplus moneys resulting from a mortgage foreclosure sale of certain realty situated in Queens County . After payment of the first mortgage which was foreclosed, together with the incidental expenses in connection with the foreclosure, the net surplus amounted to $20,502.28 presently on deposit with the Treasurer of the City of New York .

The moving party herein, Estelle R. Ullman, is a second mortgagee. No one disputes her right to priority over all other claimants to the fund and indeed the two other principal claimants, the State of New York and the United States , concede her right to recovery. The principal dispute, therefore, is between the United States , which claims the entire fund remaining after defendant Estelle R. Ullman is paid, and the State of New York , which claims approximately one-half of the remaining moneys.

[Contentions]

As above stated, the United States claims priority over the State of New York as to the entire remaining amount. The State of New York concedes the priority of the Federal Government with respect to certain liens of the United States received by the Director of Internal Revenue prior to April 20, 1953, which was the date of the filing by the Industrial Commissioner of the State of New York for a warrant in the sum of $8,784.90.

The tax warrants of the State of New York were filed on April 20, 1953 , June 17, 1953 , March 10, 1955 , and May 26, 1955 . It appears that since that time no further affirmative action was taken. The federal tax liens became liens on the date that the assessment lists were received by the collector, which dates appear to be September 12, 1952, March 9, 1953, April 7, 1953, July 8, 1953, January 7, 1954, July 7, 1954, and April 15, 1955. These liens, as stated above, became liens on date the assessments were made (Internal Revenue Code, secs. 6321-6322).

Certain of these liens, as may be seen from the dates, became liens under the law prior to the filing of the warrants of the industrial commissioner. Specifically, these would be the assessments dated September 12, 1952 , March 9, 1953 , and April 7, 1953 . As to those liens the State of New York concedes priority to the United States . It is as to the liens filed after April 20, 1953 , the date of the warrant of the industrial commissioner, that the State of New York claims priority. The contention of the State of New York is to the effect that it is a judgment creditor entitled to priority over the federal government as to those liens of the federal government which were filed subsequent to the warrant of the industrial commissioner.

[Judgment-Creditor Issue]

If the State of New York claims to be a judgment debtor [creditor] entitled to priority, such claim cannot be sustained. We believe that Congress used the words "judgment-creditor" in section 3672, in the usual conventional sense of a judgment of a court of record since all states have such courts. Mere attachment of the state's lien prior to the recording of the federal liens did not in and of itself divest the taxpayer either of possession or title to its property. There is no evidence that the state had reduced the property to its own possession and thereby perfected its lien before the federal government had filed (People of Illinois v. Campbell, 329 U. S. 362).

[Assignment For Benefit of Creditors]

If what we have said is not sufficient to defeat the claim of the State of New York , we think that the fact that the defendant mortgagor made a general assignment for creditors completely disposes of any claim by the State of New York . Section 191 of Title 31, United States Code (Money and Finances) provides that whenever any person indebted to the United States is insolvent, the debts due the United States shall be first satisfied. It further states that such priority extends as well to cases where a debtor makes a voluntary assignment for the benefit of creditors. The record here discloses that on July 15, 1953 , the mortgagor defendant herein made such general assignment. "A debt due the United States is required first to be satisfied when the possession and control of the estate of the insolvent is given to any person charged with the duty of applying it to the payment of the debts of the insolvent as the rights and priorities of creditors may be made to appear" (Bramwell v. United States Fidelity and Guaranty Co., 269 U. S. 483, 490). The referee herein is charged with such duties and obligations. No question of whether the debtor was insolvent within the meaning of the statute arises, since the statute specifically is made applicable to persons who have made general assignments for the benefit of creditors, and it is conceded that the mortgagor defendant herein made such assignment. Accordingly, the referee's report is confirmed. Inasmuch as the party opposing confirmation concedes that Estelle R. Ullman has priority as a second mortgagee and as the referee must be paid his fee as well as the stenographic reporter, the following payments are directed to be paid by the Treasurer of the City of New York upon receipt of a certified copy of the order to be entered hereon: Estelle R. Ullman (second mortgage with interest) $5,659.97; William Newrock (stenographic services) $108.46; Thayer Chapman (referee's fees and disbursements) $1,007. The balance shall be paid to the United States of America . Submit order in accordance with the foregoing.

 

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