were filed by general creditors having no preferential rights, but the
entire fund in hand, less costs, is applicable either to the claim of
the United States or to the claim of the Delaware Unemployment
Compensation Commission and the question is which has priority.
States contends (1) that under U. S. Revised Statutes §3466, 31 U. S.
C. A. §191, its claim for withholding and social security taxes due
from the corporation is preferred in payment to unpaid contributions to
the State Unemployment Commission, and (2) that its claim is also a
prior lien on the assets of the corporation under Title 26 U. S. C. A.
C. A. §191) provides:
any person indebted to the United States is insolvent * * * the debts
due to the United States shall be first satisfied; and the priority
established shall extend as well to cases in which a debtor not having
sufficient property to pay all his debts, makes a voluntary assignment
thereof, * * * as to cases in which an act of bankruptcy is
given the debts of the
under this section, therefore, applies only in cases of the insolvency
of a debtor, and that condition must be manifested in one of the modes
mentioned in the statute.
A voluntary or
"consent receivership" on the ground of insolvency is a
"voluntary assignment" of the debtor's property within the
meaning of Section 3466. Price v. United States, 269 U. S. 491 [1
USTC ¶158]; United States v. Butterworth-Judson Co., 269 U. S.
504 [1 USTC ¶159]; see also West Coast Power Co. v. Southern Kans.
Gas Co., 20 Del. Ch. 130. Furthermore, an act of bankruptcy is
committed is a person "(5) while insolvent or unable to pay his
debts as they mature, procured, permitted, or suffered voluntarily or
involuntarily the appointment of a receiver or trustee to take charge of
his property." 11 U. S. C. A. §21(a), supp., p. 87, 52 Stat. 844.
the facts of this case, when the receiver was appointed, insolvency in
the broad sense could hardly be denied. Cf.
v. Campbell, 329
, et al., v.
is construed liberally and the word "debts" includes taxes due
. Price v. United States, supra; United States v. Emory, 314
, et al. v.
, supra; Churchill v. S. W. Straus Invest. Corp., 25 Fed Supp. 316
[38-2 USTC ¶9574].
Unemployment Compensation Statute (§14, Chapt. 258, Vol. 41, Laws of
Del, p. 774, as amended by §20, Chapt. 280, Vol. 43, Laws of Del., p.
event of any distribution of an employer's assets pursuant to an order
of any court under the laws of this State, including any receivership,
assignment for benefit of creditors, adjudicated insolvency, composition
or similar proceeding, contributions then due or thereafter falling due
shall be paid in full prior to all other claims except taxes due the
United States or the State of Delaware which by statutory provisions are
prior liens on the said assets * * *."
distributing an employer's assets in a receivership, this statute, with
certain exceptions, therefore, purports to give prior rights to unpaid
contributions due the Commission, but the priority given the
by Section 3466, though not a lien, cannot be impaired or superseded by
state law. Spokane County v. United States, 279
80 [1 USTC ¶387];
, supra; Churchill v. S. W. Straus Invest. Corp., supra; Decker v.
Decker Bldg. Material Co., 118 N. J. Eq. 177; West Coast Power
Co. v. Southern Kans. Gas Co., supra. In the latter case, in paying
claims against an insolvent corporation in the hands of a receiver, the
question was whether income taxes due the
were entitled to priority over the State's claim for franchise taxes.
The Chancellor said:
provisions of article 6 of the Constitution of the United States, which
declare inter alia, that the laws of the United States which shall be
made in pursuance of the Constitution, shall be the supreme law of the
land, require that the priority conferred by section 3466 of the U. S.
Revised Statutes, above quoted, should outrank the preference which is
given to the State by section 69 of the Franchise Tax Law * * *."
of Mortgaged Property]
principles, in the absence of other controlling circumstances, the claim
filed by the
for taxes would be entitled to be priority in payment over the claim of
the State Unemployment Compensation Commission. The Unemployment
Compensation Commission concedes this, with respect to the proceeds of
corporate assets not subject to the chattel mortgage at the time of the
appointment of the receiver. It claims, however, that applying the
principles of Ferris v. Chic-Mint Gum Co. (14 Del. Ch. 232), its
claim for unpaid contributions has a prior right to that of the United
States, with respect to the proceeds of the sale of the mortgaged
property. The receiver, pursuant to authority given, sold all the
corporate assets in a single lot, and in the absence of some evidence as
to the amount received from the mortgaged property, the Commission also
claims that the proceeds should be determined by apportionment based on
appraised value and the relation of that value to the total sale price.
As a general
rule, by statute taxes due the
are liens on the property of the taxable from the time the assessment
list is received by the collector, though it seems that a demand for
payment must be made and a notice of the lien filed in a place which may
be prescribed by state statute. Title 26,
C. A. §§ 3670, 3671, 3672, 53 Stat. 448, 449. Pursuant to that power,
the Legislature by Section 3355 of the Revised Code of 1935 provided:
of liens for taxes payable to the
United States of America
* * * shall be filed in the office of the Recorder of Deeds of the
County or Counties in this State, within which the property subject to
such lien is situated."
the notice be filed pursuant to this statutory provision, the tax lien
of the United States is not valid "as against any mortgagee,
pledgee or purchaser of such security, for an adequate and full
consideration in money or money's worth, if at the time of such
mortgage, pledge or purchase such mortgagee, pledgee, or purchaser is
without notice or knowledge of the existence of such lien." Title
26, U. S. C. A. §3672. Cf. In re Decker's Est., 335
State 331 [46-2 USTC ¶9399], certiorari denied 331
The acts of
Congress above referred to, largely stem from United States Revised
Statute §1386, as amended.
mortgage covering a part of the corporate property was dated November
26, 1946, and it is at least tacitly conceded that it was a duly and
promptly recorded lien. The
' tax liens were filed in the office of the Recorder of Deeds for the
county between May 20, 1947, and December 29th of that year, and no
assessment was received by the Collector of Internal Revenue until May
v. Chic-Mint Gum Co., supra., there was a mortgage lien on corporate
real property which came within the exception in 26 U. S. C. A. §3672,
and also unpaid state, county and city taxes which, pursuant to state
statute, were conceded to have priority over the mortgage. All of these
claims were filed. There was also a claim for unpaid corporate income
taxes due the
. The fund in the hands of the receiver was insufficient to pay both the
mortgage and the preceding local tax liens in full. Under the
circumstances, the Chancellor held that such tax liens, as well as the
mortgage creditor, had prior rights to the claim of the
. In reaching that conclusion, he said:
the government agreed by Section 3186 to take rank after the mortgagee,
it must necessarily follow that it is subordinate in rank to those who
are superior to its immediate senior.
conclusion is applicable to the peculiar facts of this case."
But that part
of the Unemployment Compensation Commission statute, as amended, above
quoted, and the agreed facts do not indicate that the unpaid
contributions due the Commission were liens on the corporate assets, and
Ferris v. Chic-Mint Gum Co. is not in point. Furthermore, it is
unnecessary to consider whether such claims could have been made valid
liens under other provisions of the statute prior to the appointment of
the receiver. Cf. Theisen, admr., v. Hoey, et al., -- Del. Ch.
--, 58 A. 2d 569.
In the Ferris
Case, the Chancellor also said:
of the fact that the proceeds from the sale of the real estate are
insufficient to take care of all liens, it has not been necessary to
examine the general question of the relative rights of Federal and State
governments in asserting their respective claims for taxes."
As we have
seen, the Chancellor subsequently discussed that question in West-Coast
Power Company v. Southern Kansas Gas Company, supra.
does not attack the order directing the payment of the principal debt of
the chattel mortgage from the proceeds of the sale of the property in
C. A. §3672, supra. Furthermore, while the procedure was
somewhat unusual, there is nothing to indicate that the property covered
by the mortgage was worth less than its appraised value.
The fund in
the hands of the receiver, less any unpaid costs (Ferris v. Chic-Mint
Gum Co., supra), is applicable to the claim of the
An order will
be entered accordingly.
After the appointment of the receiver, it was discovered that, through
some oversight, the corporate charter had not been filed in the office
of the Secretary of State and recorded according to law, but Mitchell's
Restaurant, Inc., having operated as a corporate entity, was held to be
a de facto corporation, for which a receiver could be appointed.
¶9360]Harrisburg Trust Company v. Snyder
the Court of Common Pleas, Cumberland County, Pennsylvania, February
Term, 1946, Filed March 21, 1947
Lien of United States for taxes: Validity against mortgages: Wages
and attorneys' fees under Pennsylvania law.--In an action to
determine the distribution of proceeds of sale of chattel mortgage
property in the hands of the sheriff, it was held that the lien of the
United States for taxes had priority over claims of the holder of the
mortgage recorded subsequent to the attachment of the tax lien, but the
latter was subordinate to a lien for wages earned prior to the date of
the tax lien to the extent that, under Pennsylvania law, they were
earned in the 6-month period preceding the sheriff's sale. Attorneys'
fees in that State are not a preference out of the money raised by their
services when the proceedings are in a common law action or form money
in the hands of a sheriff under a writ of execution. Nor are such fees
in a confession judgment in a better position than the principal debt
Updegraff, for plaintiff and himself. Frederick V. Follmer, for
ert L. Meyers, Jr., for Arthur E. Love, wage claimant. Harold S. Irwin,
REESE, P. J.:
October 3, 1945
there was filed in the prothonotary's office a chattel mortgage executed
by the defendant herein in favor of the plaintiff. On
September 19, 1945
the Collector of Internal Revenue, on behalf of the
, had filed three tax liens in the prothonotary's office against the
defendant herein, aggregating approximately $5400.00.
On December 5,
1945 a writ of vend. ex. was issued on a judgment, entered on a warrant
to confess judgment contained in a note attached to the chattel
mortgage. Judgment was for the balance then due on the chattel mortgage,
$3900.00, with interest from October 8, 1945, together with costs and an
attorney's commission of fifteen per cent as provided in the warrant to
December 17, 1945, after proper notice, the sheriff sold the personal
property of the defendant to the plaintiff herein for $900.00. After
deducting the costs of sale in the sum of $50.25, the balance, $849.75
was, by the return of the sheriff, placed in the hands of the
prothonotary, the sheriff stating that it was impossible for him to
determine proper distribution. Thereupon an auditor was appointed to
Prior to the
sheriff's sale two wage claims were filed with the sheriff, one by
Arthur E. Love for $541.38 and the other by L. A. Johnson for $216.00.
The auditor held hearings, at which various claims were proved. The wage
claim of Love was proved, but the other wage claimant, Johnson, did not
appear to prove his claim. A claim was also presented by Russell B.
Updegraff, Esq., as attorney for the plaintiff herein, for $585.00,
which he claims as the attorney's commission of fifteen per cent
provided for in the warrant to confess judgment. In his report the
auditor distributed the fund, as follows: (1) the payment of the costs
of audit; (2) the docket costs of $60.25 in connection with the judgment
and vend. ex.; (3) the wage claim of Arthur E. Love in the sum of
$200.00, and (4) the balance to the Collector of Internal Revenue.
has filed an exception, objecting to the allowance of the wage claim,
and Mr. Updegraff has filed an exception, objecting to the disallowance
of his claim for $585.00 as an attorney's fee.
opinion, the wage claim was properly allowed. Under the provisions of 36
USCA 3670 and 3672, unpaid taxes due the
are a lien on all property, real and personal, of the delinquent
taxpayer, but the lien is not valid as against any mortgagee, pledgee,
purchaser, or judgment creditor until filed in the proper office, which,
in this case, is the prothonotary's office of this court. Under 36 USCA
3671, "the lien shall arise at the time the assessment list was
received by the collector and shall continue until satisfied." Two
of the tax claims herein are dated September 10, 1945 and the other is
dated September 12, 1945. Each of the claims recites the assessment
against the defendant herein, but the date on which the assessment list
was received by the collector is left blank in each claim and no
evidence was offered before the auditor as to the date of which the
assessment list was received by the collector. In the absence of any
such evidence, the auditor properly assumed that the assessment list was
received on the date of the claims, to wit, as to two of them on
September 10, 1945, and as to the other on September 12, 1945. Therefore
the government's lien dates from September 10th and 12th. The government
made no claim for priority by reason of any sovereign prerogative. The
sections quoted above merely give the government a lien for unpaid
The Act of
April 9, 1872, P. L. 47, as amended, 43 P. S. 221, provides that wages
of the type defined in the statute shall be a lien upon the employer's
personal property used in his business to the extent of the interest of
the employer in the property, and shall be preferred and first paid out
of the proceeds of the sale of such personal property. It is also
provided that protection against wage claims is accorded only to
mortgages or judgments entered before such labor is performed. Liens
created by mortgage or otherwise after the work is done cannot prevail
against the wage claim: Bank v. Chemical Co., 9
Super. 275. Under the Act of 1872, supra, preference is given to
a wage claim for any period not exceeding six months preceding the sale,
and not exceeding $200.00. The wages claimed by the wage claimant herein
were earned in the six months preceding the sale and ware also earned
before the date of the government lien. As stated above, the government
does not claim any sovereign priority. Therefore, it depends merely upon
the position of its lien. Inasmuch as the lien for the wage claim dates
from the time the wages were earned, it antedates the government's lien.
The auditor was therefore correct in allowing the wage claim of $200.00
ahead of the government's lien for unpaid taxes.
Passing to the
claim of Mr. Updegraff for an attorney's fee of $585.00, it is urged
that he has a charging lien therefor on the fund for distribution under
the principal that an attorney has a charging or equitable lien upon a
fund which has been procured by the efforts of the attorney while acting
on behalf of his client. That an attorney does have a charging lien
under proper circumstances has been recognized in many cases; for
example, in Harris's Appeal, 323
124; Turtle Creek Bank and Trust Co. v. Murdock, 150
Super. 277; but, it was pointed out in Zinsser v. Zinsser, 83
Super. 461, 464 that the rule that an attorney may claim his fees as a
preference out of money raised by his services when it has come within
the grasp of the court, applies only to a court of equity, or to a
proceeding in the Orphans' Court; and that it does not apply to a common
law action or to money in the hands of a sheriff under a writ of
execution. It was also held in Quakertown & Eastern Railroad Co.
v. Guarantors' Liability Indemnity Co., 206 Pa. 350, and Irwin v.
Workman, 3 Watts 357, that an attorney's charging lien does not
apply to money in the hands of a sheriff under a writ of execution. To
the same effect is Miners Savings Bank of Pittston v. Shepris, 25
Luz. L. R. 381; Blakeley's Petition, 39 D. & C. 675, and Dubois's
231. In the Dubois case, the court said that in distributing
money in court the common pleas is guided by the liens of rocord; that
the attorney has no title to the judgment which he secures, and not
being an owner he cannot claim as a distributee. It was also pointed out
in Harper v. Consolidated Rubber Co., 284 Pa. 444, that an
attorney's commissions stipulated for in a warrant to confess judgment,
are not costs but are part of the judgment and belong, not to the
attorney, but to the plaintiff in the judgment, and that therefore such
commissioners are to be preferred or postponed as the principal debt is
preferred or postponed.
Creek Bank & Trust Co. v. Murdock, 150
Super. 277, 283, it was pointed out that the cases, herein cited,
holding that an attorney's charging lien does not apply to money in the
hands of a sheriff under a writ of execution, were decided prior to Harris's
Appeal, 323 Pa. 124, which has considerably broadened the scope of
an attorney's common law charging lien. However, we do not think that
what was decided in Harris's Appeal would permit a charging lien
under facts such as those now before us. In Harris's Appeal, an
attorney, after litigation, secured a favorable award in a condemnation
proceeding for the owner of the condemned property. After the award was
made, but before it was paid by the city, the holder of a mortgage on
the property filed a petition to have the whole award paid to it as lien
creditor, and it was held that the fund was first subject to the
attorney's claim for the reasonable value of his services. Two facts
must be particularly noted. The fund produced by the attorney's services
was created for his client and belonged primarily to the client, and
under an agreement with the client the attorney was to look to the fund
for his compensation.
The facts in
the Turtle Creek case are somewhat similar. An attorney for one
Murdock, after the trial of an equity suit, finally established that
Murdock was the legal owner of certain real estate, title to which was
held by another as a resulting trustee. Shortly after the decree vesting
title in Murdock, the plaintiff bank revived a judgment against Murdock,
thus making it a lien on the real estate and thereafter execution was
issued against the real estate and the property sold for less than the
amount of the judgment. It was held that Murdock's attorney had a
charging lien on the fund ahead of the judgment of the bank. Here again,
the attorney's services succeeded in procuring a property for his client
and which belonged primarily to his client, and under an agreement with
the client the attorney was to look to the property or any fund derived
therefrom for his compensation.
In the case
before us the property that was sold belonged to the defendant herein,
the judgment debtor. Mr. Updegraff's services did not procure any
property or money for his client, the plaintiff herein, which belonged
primarily to the plaintiff. It cannot be said that the fund realized by
the sheriff's sale ever belonged, in any sense, to the plaintiff herein.
The plaintiff merely had a lien, which post-dated the lien of the
. Furthermore, there is nothing on the record to show any agreement with
his client under which the attorney was to look to any fund realized by
the sale for his compensation. The attorney seeks the full fifteen per
cent on the amount owed to his client, or, in other words, fifteen per
cent of $3900.00, although the sheriff's sale realized only $900.00. As
already pointed out, such attorney's commission did not belong to the
attorney nor does he have a changing lien therefor.
AND NOW, March
21, 1947, the exceptions to the auditor's report are overruled and
dismissed, and distribution is ordered in accordance with the schedule
of distribution in the auditor's report.
¶9333]Joseph Dannenberg v. L. Leopold & Co.;
Court of New York, N. Y., 65 NYS2d 549, July 1, 1946
Priority of lien for Federal taxes: Proceedings under Sec. 794 of New
York Civil Practice Act: When judgment creditor's lien superior.--In
a proceeding under Sec. 794 of the Civil Practice Act of New York, which
allows intervention of judgment creditors to enforce their liens, it was
held that a judgment creditor acquired a vested superior interest in a
fund held by the City of New York by the institution of such proceeding,
of which he was not divested when the United States subsequently
perfected its tax lien as required by Code Secs. 3670 to 3672, although
prior to the creditor's proceedings the Collector had served notice of
lien upon the city. The lien of the
had no validity against others until notice thereof was filed in the
office of the clerk of the district court.
numbers 23 and 29 have been consolidated.
By the service
of the third party subpoena upon the City of New York the judgment
creditor acquired a lien upon the fund held by the city (Matter of
Wickwire Spencer Co. v. Kemkit, &c., 292 N. Y., 139). It is,
therefore, clear that the right of the judgment creditor is superior to
that of Healy, who became the assignee of the fund after the third party
order had been served. I do not consider the averments of the judgment
debtor's employee, Bova, even if taken at full value, sufficient to
establish a binding agreement by Dannenberg to subordinate to Healy.
will therefore be granted to the extent of directing payment by the
third party to the judgment creditor Dannenberg under section 794, Civil
Practice Act, of the sum of $720.98, which is arrived at by deducting
from $950 the city's set-off for taxes, amounting to $229.02.
cannot direct payment by the third party of any moneys to Cranford Co.,
Inc., as there is no statutory or other authority which would warrant
the making of a summary order by this court requiring the third party to
pay anything to that corporation. Section 794, Civil Practice Act,
authorizes the making of an order directing a payment to a judgment
creditor who has established his right under that statute. It does not
provide for payment to anyone other than a judgment creditor. No order
under section 794 may be made which is in derogation of the superior
interest in the fund of Cranford Co., Inc., and enough of the fund
should be left with the city to cover the
claim plus interest, plus possible costs of litigation. For that reason
it is directed that the third party, the city, pay to the creditor
Dannenberg not $1,040.12, as asked by the latter, but $950 less the
amount of the city's set-off for taxes. If there should be a surplus
left after Cranford Co., Inc., has been paid in full, the creditor
Dannenberg may make another application to take that surplus.
The claim of
United States of America
, based upon its tax liens, is subordinate to that of the creditor
Dannenberg. This, I think, is the necessary effect of Matter of
Wickwire Spencer Co. v. Kemkit, &c. (supra). By the service of
the third party subpoena the judgment creditor acquired a vested
interest of which he was not divested when the
United States of America
subsequently perfected its levy. Concededly this occurred after the
third party subpoena had been served. The third party subpoena was
served November 2, 1944. The first of the various assessments upon which
the government's claim is predicated was contained in an assessment list
received in the officer of the Collector of Internal Revenue for the
Third District of New York about November 14, 1944, and note and demand
for payment were made the same day. The notice of levy was served by the
Collector of Internal Revenue upon the Treasurer and Comptroller of the
on July 16, 1945, and the final notice and demand were served upon the
said treasurer and comptroller on November 5, 1945.
federal statute provides that the lien of the government is not
"valid as against any mortgagee, pledgee, purchaser or judgment
creditor until notice thereof has been filed by the collector--* * *. In
the office of the clerk of the United States district court for the
judicial district in which the property subject to the lien is situated,
whenever the state or territory has not, by law, provided for the filing
of such notice; * * *" (53 U. S. Stat. at Large, 448; U. S. C.,
Title 26, paragraphs 3670 to 3672).
concedes that the notice of lien was not filed as required by the
aforesaid statute, but claims that its right to the fund is derived from
the service by it upon the City of
of the notice of levy and warrant of distraint on
July 16, 1945
. However, the right thus acquired by the city is "subject to an
attachment or execution under any judicial process" (U. S. C.,
Title 26, section 3710).
The service of
the third party subpoena by this judgment creditor effected an
attachment upon the fund; it gave the judgment creditor a legal interest
therein, the right of a lienor, superior to any which the government
could acquire by a subsequent levy. In short, when the government made
its levy there was no thing for it to levy upon as, for all practical
purposes, the fund had then already been legally appropriated to the use
of this judgment creditor.
might have been taken before the Wickwire case was decided, it is
clear now that the service of the third party subpoena gives the
judgment creditor a specific lien or interest in the fund which has been
subjected to the attaching or injunctive provision contained in such
on notice to all parties.
¶9688]Shenk Realty and Construction Company, Judgment Creditor, v.
James W. Barrett, Judgment Debtor
Court of New York, New York County, Special Term, 36 NYS2d 624, July 24,
Lien for taxes: Priority of government lien.--Where a judgment
creditor had done no more than serve its subpoena in an action to levy
on royalties due to its judgment debtor from a third party, the right of
the government to the royalties became complete by service of a copy of
notice of tax lien, notice of levy and a warrant of distraint upon the
third party which thereupon became liable for the amount of the tax, to
the amount of the royalties in its possession.
Harry W. Pitt,
for the judgment creditor. Stern & Reubens [Arthur E. Farmer of
counsel], for the third party.
judgment creditor, under section 794 of Civil Practice Act, to compel
third party indebted to judgment debtor to pay over amount of
indebtedness to judgment creditor. The motion is resisted on the ground
that the Collector of Internal Revenue has a superior right to the
indebtedness for taxes due the government from the judgment debtor, and
that to compel the third party to pay over would subject it to liability
to the government.
dates, so far as they appear from the papers are these. The judgment was
December 4, 1939
November 15, 1940
, a subpoena containing a reference to the restraining provision of
section 781 of the Civil Practice Act, was served upon the third party.
September 12, 1941
, the third party and the judgment creditor entered into a stipulation
with respect to royalties then due the judgment debtor from the third
December 15, 1941
, the Collector served upon the third party a notice of levy, a notice
of tax lien and a warrant of distraint. (53
Stat. at Large 456; U. S. Code, tit. 26, §3710.) The notice of lien was
December 10, 1941
, and recited that there had been an assessment against the judgment
debtor for income taxes for the year 1936. Neither the date of
assessment nor the date of the receipt of the assessment list by the
Collector is given; (53 Stat. at Large 449; U. S. Code, tit. 26, §3671)
nor the date of the filing of the notice of lien with the appropriate
court (53 U. S. Stat. at Large 449 as amd.; U. S. Code, tit. 26, §3672)
but we must assume that it was filed and I shall assume that assessment
and filing came after the service of the third party subpoena.
The motion by
the judgment creditor is denied. The right of the Government to the
royalties became complete by the service of a copy of notice of tax
lien, notice of levy and a warrant of distraint upon the third party
which thereupon became liable for the amount of the tax, to the amount
of the royalties in its possession. (53
Stat. at Large 456; U. S. Code, tit. 26, §3710.) "This [the
service of a notice of levy and of a warrant of distraint] was an actual
levy by the Collector upon the property of the tax debtors." (Sport-Craft,
Inc. v. Lasker, 177 Misc. 872, 873.) Up to the time of the
Collector's action the judgment creditor had done no more than to serve
its subpoena. But the service of the subpoena alone gave the judgment
creditor no such interest in any property or property rights of the
judgment debtor in the hands of the third party as would stand in the
way of the Federal statutes dealing with distraint. Those statutes
prevail and under them the Government's right is paramount unless at the
time of levy and demand the property was "subject to an attachment
or execution under any judicial process." (53
Stat. at Large 456; U. S. Code, tit. 26, §3710.) There was no
attachment or execution here in the strict sense, and the judgment
creditor had yet, by taking other steps, to acquire a specific lien or
interest in the judgment debtor's property. (Reynolds v. AEtna Life
Ins. Co., 160 N. Y. 635; McCorkle v. Herrman, 117 id. 297.)
In Manufacturers Trust Co. v. Sobel (175 Misc. 1067), where the
government had filed a notice of lien, but had made no levy or had not
distrained, its lien was held to be subordinate to that of a judgment
¶9328]First National Bank of
, a corporation, and L.O. Carter, Plaintiffs in Error, v. Southland
Production Company, et al., Defendants in Error. First National Bank of
, a corporation, and L.O. Carter, Plaintiffs in Error, v. Southland
Production Company, et al., Defendants in Error.
the Supreme Court of the State of
, Nos. 27,260, 27,261., 112 P2d 1087,
Appeal from the
Priority of claims.--In determining the validity of a first lien
arising out of the preference of one creditor, the Court further
determines the relative priorities of certain intervening parties. The
lien for all taxes due the State for motor fuel is held superior to both
the lien of the
Government and that of various labor claimants, and the lien of the
Government is held superior to that of the labor claimants. Two
Cantrell & McCloud, for plaintiffs in error. William C. Lewis and
George E. Massey, Jr., for appellee and cross-petitioner,
. C.D. Cund, Thomas H. Owen, and Albert D. Lynn, for appellee and
cross-petitioner, Oklahoma Tax Commission. Gordon Fuller and Frank
Field, for appellees and cross-petitioners, Jack B. White and T.H.
White. Roddie & Beckett, for defendants in error, cross-petitioners
O.T. McNeil and others, labor claimants.
This is an
appeal from a judgment of the
in Causes No. 88,307 and No. 88,320, consolidated for trial in that
In Cause No.
88,307, the Southland Production Company, an express trust, through its
trustees, hereinafter referred to as plaintiff, sued the Olympic
Refining Company for a balance due on an open account in the sum of
$943.18. Plaintiff petitioned the court for appointment of a receiver.
The receiver was appointed and took charge of certain property of
that defendant Olympic Refining Company, located at
, was engaged in the business of refining and marketing crude petroleum
and its products. Certain motor fuel taxes were due the State of
and to the United States Government. The Oklahoma Tax Commission and the
Collector of Internal Revenue of the
had issued tax warrants which were levied upon certain tank cars of oil
involved in this action and under said warrants the Sheriff of Oklahoma
County took possession of said cars of oil.
National Bank of Alex and L.O. Carter instituted a replevin action in
the District Court, which is Cause No. 88,320, against the Sheriff for
recovery of possession of the cars of oil and oil products herein
involved. The Bank and Carter also intervened in Cause No. 88,307, and
for convenience will be hereinafter referred to as interveners. The
trial court entered an order requiring the Sheriff to deliver possession
of the cars of oil to the receiver of defendant, Olympic Refining
Company, which order was issued over the protest of the First National
Bank of Alex and L.O. Carter.
intervened in the action including the State of
claiming taxes for motor fuel sales, and laborers seeking to establish
and foreclose laborers' liens.
interveners, First National Bank of Alex and L.O. Carter, contended that
there was a sale of the property involved herein by defendant Olympic
Refining Company to Carter and a mortgage executed by him to the First
National Bank of Alex and as a result of said transaction the Bank had a
lien upon the property superior to the liens of the other parties
asserting claims against the Olympic Refining Company. The trial court
held that the sale was void and as a consequence the mortgage to the
Bank was likewise ineffective and that the Bank was only a general
creditor of the Olympic Refining Company. Joined in a cross-appeal are
the Oklahoma Tax Commission and the
, and various labor claimants appealing only from the order of payment
of the various claims. The contentions of the First National Bank of
Alex and L.O. Carter will be considered first. The circumstances under
which they lay claim to the property involved herein are as follows:
Refining Company was handling most of its sales of its products through
L.O. Carter, an individual doing business at
, as L.O. Carter Company. The Olympic Company did its banking business
with the First National Bank of
. Its affairs were practically all handled by Leslie Cole, the manager
of the company. The manager would draw up invoices of carloads of its
refined products and attach a draft drawn upon L.O. Carter, and deposit
same in the First National Bank of Alex, to the credit of the Olympic
Refining Company. The Alex Bank would then send the drafts with invoices
to the First National Bank at
for collection from L.O. Carter. When Cole of the Olympic Company
deposited these drafts with the Alex Bank, that bank would immediately
give the Olympic Company credit on his checking account for the amount.
The Alex Bank would allow these drafts to remain in the Tulsa Bank until
Carter took them up; which usually was only when Carter sold the
products which were represented by the draft and invoice. As a result,
there accumulated an advancement by the Alex Bank to the Olympic Company
of over $11,000.00. This practice had existed from July to September,
that about the middle of September the cashier of the Bank, Mr. Grady
Harris, became aware that the Bank had advanced more money to the
Refining Company than banking regulations permitted. Said cashier met
Leslie Cole, the manager of the Company, and L.O. Carter, on September
23, 1935, for the purpose of effecting some arrangement to relieve the
condition occasioned by non-payment of the drafts. It is shown that the
manager of the Refining Company offered to give a chattel mortgage to
the bank on certain carloads of oil which it owned which were upon the
freight yards in
. This was unsatisfactory to the Bank because it would not result in
reducing the amount of the advancements from the Bank to the Company,
which were already excessive. It was finally agreed between the three
parties that Carter would buy all of the products of the Refining
Company and would in turn give his promissory notes and chattel mortgage
to the Bank upon the carloads of oil hereinabove referred to as security
for the payment thereof. The amount of said notes was $4,949.61, and of
said amount $3,122.79 was credited to the account of the Refining
Company thereby reducing its indebtedness to the Bank in said amount and
the sum of $1,823.82 was loaned from the Bank to the Refining Company
for the purpose of paying taxes then due the Oklahoma Tax Commission. It
does not appear that any consideration was paid by Carter to the
Refining Company nor did he receive any portion of the proceeds of the
notes hereinabove referred to. The good faith of the transactions
related is not questioned, legal fraud only being relied on to assert
court found, and it is argued here, that the sale to Carter was
violative of the provisions of section 10,008, O.S. 1931, 24 Okl. St.
Ann. 6, which is as follows:
transfer of personal property other than a thing in action, and every
lien thereon, other than a mortgage, when allowed by law, is
conclusively presumed, if made by a person having at the time the
possession or control of the property, and not accompanied by an
immediate delivery, and followed by an actual change of possession of
the things transferred, to be fraudulent and therefore void, against
those who are his creditors while he remains in possession, and the
successors in interest of such creditors, and against any person on whom
his estate devolves in trust for the benefit of others than himself, and
against purchasers or incumbrancers in good faith subsequent to the
of Transaction in Question]
findings of the trial court it appears that this arrangement between the
company, the bank and Carter is broken down into two separate
transactions, it being held that the sale to Carter was void since there
was no change of possession of the property sold, therefore the mortgage
executed by him to the Bank was likewise void; but, as we see it, the
transaction between the Refining Company, the Bank and Carter was a
single transaction. There was not, in a strict sense of the word, a sale
of the property to Carter within the meaning of that term as used in
Section 10,008, O.S. 1931, 24 Okl. St. Ann. 6; but viewing the
transaction as a whole it is apparent that Carter was selected by the
Refining Company and the Bank as an intermediary or agent for the
purpose of executing a mortgage which was designed to furnish protection
to the Bank and to relieve the situation created by the excessive
indebtedness of the Refining Company to the Bank. As a part of the same
transaction Carter was appointed an agent for the bank to proceed to
sell the carloads of oil upon which the mortgage was given and upon the
sale thereof was to transmit the proceeds to the Bank to be applied upon
the notes which he had executed to the Bank for the debt of the Refining
Company. Summarizing, we are driven to the conclusion that the whole
purpose of the transaction was to give to the bank which had advanced
the money for the operation of the business a certain priority over the
other creditors of the Refining Company which, under the provisions of
the applicable statutes, is expressly authorized. Said statute, Section
10,012, O.S. 1931, 24 Okl. St. Ann. 11, is as follows:
person in this State indebted to other persons shall have the right to
prefer one or more of such creditors in good faith to secure a valid
debt, which preference may be manifested by payment, by mortgages,
either real or chattel, or by the transfer of personal property or real
estate, and if received by the creditor in good faith, such conveyance
or mortgage shall be valid in the hands of the mortgagee and constitute
a preference to the extent thereof, subject to the laws relating to the
filing and recording of mortgages.
situation to which we have just referred is somewhat analagous to the
facts involved in Iowa National Bank v. Citizens National Bank,
70 Okl. 1, 172 P. 924, wherein it was held:
the owner of personal property, without fraud, executes a bill of sale
therefor to another, said bill of sale being executed without
consideration, and for the purpose of procuring money for the owner, of
the property, retaining the actual possession of the property, and the
one to whom such a bill of sale is made, with the knowledge and approval
of the owner of the property, executes a mortgage upon the property, and
the proceeds resulting from the sale and assignment of said mortgage is
delivered to the owner of the property, such mortgage is a prior lien on
said property to that of a mortgage subsequently executed by the owner
of said property to secure a past indebtedness, where the mortgagee of
said subsequent mortgage at the time of taking said mortgage from the
owner of said property had actual knowledge of the prior mortgages, and
the manner in which the same were brought about.
The above rule
has been free from criticism except in those cases where effort was made
to apply it outside of the field of its intended operation. It is
evident that effort has been made to use this authority in support of
the minority rule that the recording of a chattel mortgage by a stranger
to the title thereof constitutes notice to subsequent purchasers and
incumbrancers of said property. See People's Finance & Thrift Co.
v. Shirk, 181 Okl. 418, 74 P. (2d) 379, wherein the court discusses
case of Rhea Mortgage Co. v. Lemmerman, 10 S.W. (2d) 232. Therein
this court follows the rule supported by the overwhelming weight of
authority to the effect that the filing of a chattel mortgage on
personal property by a stranger to the title thereof is void as to a
subsequent bona fide purchaser. Such is not the question decided in the
case of Iowa Natl. Bank v. Citizens Natl. Bank, supra.
In the instant
case it must be conceded that the Olympic Refining Company could have
executed a chattel mortgage on the property herein involved to the Bank
which would have been valid and binding upon all the parties herein
involved. Section 10,012, O.S. 1931, 24 Okl. St. Ann. 11, supra; Nix
v. Underhill, 8 Okl. 123, 56 P. 959; Smith-McCord Dry Goods Co.
v. John B. Farwell, 6 Okl. 318, 50 P. 159; Cobbey on Chattel
Mortgages, sec. 780, page 1010. Generally a person may do through an
agent whatever he is empowered to do in his own proper person. McNulty
v. Dean, (
) 281 P. 9, 66 A.L.R. 1417; 2 Am. Jr., Agency, sec. 22, page 24; 2
C.J.S., Agency, sec. 11, page 1039. Since the Olympic Refining Company
had a right, fixed by statute, to prefer the Bank as a creditor by the
execution of a mortgage upon its property, it necessarily follows that
it could execute such mortgage through an agent or intermediary and that
said mortgage would have the same identical force and effect as if it
had been executed by said Company. Such is one of the fundamental
principles of agency and such is the rule announced in the case of Iowa
Natl. Bank v. Citizens Natl. Bank, supra.
The finding of
the trial court that there was a sale of the property to Carter, and a
subsequent mortgage thereof to the Bank, is not supported by any
competent evidence for the reason that no consideration passed from
Carter to the Olympic Refining Company and none of the proceeds derived
from a loan passed from the Bank to Carter. It is true that after the
transaction was closed he announced to the Railroad Company, the bailee
of the property, that he was the owner thereof and subsequently
exercised some dominion over said property, but this was pursuant to the
agreement and understanding that he should proceed to dispose of the
property at the earliest possible date and should procure funds from the
sale thereof which funds were to be transmitted to the bank and used to
reduce the indebtedness which was the indebtedness of the Olympic
Refining Company and not the indebtedness of Carter, notwithstanding the
fact that the evidences of such indebtedness were executed by him.
We are not
here concerned with the rights of subsequent purchasers or incumbrancers
of the property covered by the mortgage. The claims asserted by the
other parties herein were for indebtedness which had accrued prior to
the execution of the mortgage herein involved. It is not shown that any
of said claimants were deceived, misled or were induced to change
position by virtue of the chattel mortgage herein involved. There is
involved herein nothing more nor less than a preference of a creditor,
an attempt to secure the bank which had furnished the funds upon which
the Olympic Refining Company had operated. Such preference is
specifically authorized by statute, therefore, the other creditors are
without lawful grounds of complaint.
It is thus
clear that the chattel mortgage held by the Bank constitutes a valid and
first lien and that the trial court erred in holding same void.
We will next
consider the contentions of the United States Government, the State Tax
Commission, and the various labor claimants as to the priority of their
claims as found by the trial court insofar as there are contentions of
court held that the various claims, including State and United States
Government excise taxes, be paid in the following order:
It is the
contention of the United States that it has a prior lien for all unpaid
taxes, subject only to the lien of the State of Oklahoma in the sum of
$1,286.28, which is in accord with the finding of the trial court,
except as to place the government's lien for the sum due on its second
seizure for the taxes in the sum of $1,629.67 ahead of the second
assessment of lien for the State of Oklahoma and for labor.
It is the
contention of the Oklahoma Tax Commission that the State of Oklahoma is
entitled to have both its claims for taxes reported, the $1,286.28, and
for taxes unreported at the time of the seizure in the sum of $656.72
allowed as one claim and decreed to be prior to all other claims.
We will first
consider the contentions of priority of liens as they relate to the
and the United States Government.
shows that in October, 1935, the Olympic Company filed its report for
September with the Oklahoma Tax Commission, showing a tax liability of
$1,286.28. Payment was not made at the time required and on October 9,
1935, the Oklahoma Tax Commission issued a tax warrant for the
enforcement of the payment of that sum, under the authority of section
12573, O.S. 1931, para. (b). This warrant was delivered to the sheriff
and a levy made the same day upon 36 cars of refined products, it being
the same property described in the mortgage given by Carter to the Alex
On October 11,
1935, a warrant was issued by the United States Government and on the
same day a levy upon the same property made by the government for taxes
due it for September and October, 1935.
On October 12,
1935, a receiver was appointed for the Olympic Company and by order of
the court, the possession of the property levied upon was turned over to
On November 1,
1935, notice of demand for taxes due for August, 1935, was mailed by the
Government to the Olympic Company in the sum of $1,629.67, and a copy of
same filed with the clerk of the Federal District Court and the District
Court at Oklahoma City on November 2nd.
On December 5,
1935, at the time of the trial of the cause the Oklahoma Tax Commission
filed a supplemental petition alleging that in addition to the sum of
$1,286.28 formerly stated it had discovered $656.72 additional due for
taxes for the same period of time, but that the Olympic Company had
neglected and failed to report the same. No tax warrant was issued
therefor. This sum with costs and penalty was likewise asked to be made
a prior lien and claim upon the property.
It is the
contention of the Government that the State of Oklahoma made no seizure
on its second assessment in the sum of $656.72, and that no claim for
same was filed until December 5, 1935, and that both of the Government's
claims would be superior to the second assessment of the State, even
though this Court should decide that the creation of the liens of the
Government, of the State and of the laborers and the determination of
their priorities is not dependent upon recording or proceedings taken
for their foreclosure, but rests entirely upon the dates of their
It is the
contention of the Oklahoma Tax Commission that the additional claim of
$656.72 is only a part of the first claim filed by the State; that the
taxpayer reported the taxes due for September, 1935, to be $1,286.28 and
that was the amount for which the tax warrant was issued, but the report
of the auditor disclosed that the additional sum of $656.72 was due for
the same month; that the tax warrant and seizure of the property was
made to enforce the payment of the September taxes due and that it
should be held to cover the correct amount of such taxes without regard
to the amount actually reported to be due by the taxpayer. It is
contended that to hold otherwise would result in penalizing the State of
in causing it to lose its priority by reason of the neglect and failure
of the taxpayer to report the correct amount of tax due in the first
instance. The United States Government, which hereinafter will be
referred to as the Government, admits that its lien for each of its two
assessments could not possibly accrue under the statute until October
11, and November 1, 1935, the respective dates that the Collector of
Internal Revenue received the assessments against the Olympic Company
and issues its notice to and served the collector's warrant upon said
Company. It is admitted that a receiver was appointed by the court on
October 12, 1935, and that an order was issued by the court on October
14, ordering the property to be surrendered to the receiver and that all
of the property seized was surrendered to the receiver on October 15,
contended by the Government that no tax warrant was ever levied by the
Tax Commission against the property of the Olympic Company for the
$656.72, the last amount found to be due for taxes for September, 1935,
but the Government did have served upon the receiver a warrant of
distraint for its last assessment.
property had been turned over to the receiver by order of the court
prior to the dates the Oklahoma Tax Commission or the Government
presented their claims for their second amount claimed for taxes, we
think it immaterial whether or not either served their warrant on the
receiver and that such service could not be relied upon for a basis of
priority, in so far as the Government and State of Oklahoma are
Rule v. Special Statute]
It might be
stated as a general rule, both under the State and Federal Statutes,
that different liens on the same property have priority according to the
time of their respective creation and perfection, other things being
equal. Bank of Quawpaw v. Denney, 98 Okl. 279, 225 P. 362; Portneuf-Mara
Valley Canal Co. v. Brown, 274
630. But a general rule cannot always prevail against a special statute.
Let us review
some of our state statutes pertaining to the right and priority of the
state in enforcing the lien for excise taxes due in the instant case.
12,558, O.S. 1931, 68 Okl. St. Ann. 690, provides:
Every distributor shall make and transmit to the Oklahoma Tax
Commission, on or before the fifteenth day of each calendar month, upon
forms prescribed and furnished by said Commission, a report, under oath,
showing the quantity of motor fuel sold, distributed or used by such
distributor, within this state, during the preceding calendar month, and
showing such other facts and matters as the said commission may require.
Every distributor, at the time of making the monthly report
above-mentioned, shall pay to the Oklahoma Tax Commission the amount of
excise tax due for the month covered by such report.
It is conceded
in the brief of the Government that under the provisions of this section
and section 12,561, O.S. 1931, 68 Okl. St. Ann. 693, relative to making
reports to the Oklahoma Tax Commission, they operate to vest in the
a lien upon all of the property of its agent, the refinery, or
distributor, for his failure to remit to the Tax Commissioner, the taxes
so collected for the state. Let us then determine when the lien of the
state sets up and what is necessary to put the lien in effect.
12.573, O.S. 1931, as amended in section 13, Chapter 111. Session Laws
of 1933, 68 Okl. St. Ann. 705, provides:
All excise taxes, penalties and costs accruing to the State of Oklahoma
against any distributor or against any retailer or retail dealer, shall
be a first and paramount lien upon all of the personal property of such
distributor or such retailer or retail dealer devoted to or used in his
business as such, and a lien superior to any subsequent lien, upon any
and all other property both real and personal, in the State of Oklahoma,
not exempt under the Constitution of the State, which lien shall date
from the date upon which the tax became due and delinquent. * * *
provisions of this section, the lien of the State set up on the 7th day
of October, 1935, when the distributor, the Olympic Company, made its
report for taxes due for September, 1935, but failed to pay any part of
same. The lien covered all of the property of the Olympic Company
including the property in controversy here, and such lien did not depend
for its existence and priority upon the issuance of a warrant, or
seizure of the property under the warrant. The existence of the lien not
depending upon the issuance of the warrant or the seizure of the
property for the taxes then due would extend to and include the $656.72
last reported due, as well as the $1,286.28 for which the warrant was
issued and seizure made. The issuance of the warrant and the seizure of
the property performed no function in the creation of the lien, but was
only the primary step in the procedure for the collection of the taxes
from the property upon which the prior lien had attached.
In addition to
the above quoted statutes, section 12565, O.S. 1931 as amended by sec.
8, ch. 111, S.L. 1933, 68 Okl. St. Ann. 697, provides for a special lien
of the State in cases of bankruptcy and receivership proceedings, and
the property of any person shall be seized in any means or final process
of any court of this state, or when the business of any such person
shall be suspended, by the action of creditors, or put into the hands of
any receiver, assignee or trustee or when any such person shall file a
petition in bankruptcy or against whom bankruptcy proceedings may have
been commenced, then, in any and all such cases, the excise tax due by
such person to the State of Oklahoma shall be considered as a first and
paramount claim, and the State shall in such cases have a first and
paramount lien thereon.
cites section 115, title 26, U.S.C.A. (Revenue Act 1928, sec. 613, 26
U.S.C.A., Int. Rev. Acts, Ch. 461) in support of its contention that its
lien is superior to all liens herein, except the lien of the state for
the $1,286.28, the original sum for which warrant was issued and seizure
made under same for the state. It provides:
for Taxes. (a) If any person liable to pay any taxes neglects or refuses
to pay the same after demand, the amount (including any interest,
penalty, additional amount, or addition to such taxes, 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. Unless another date is
specifically fixed by law, the lien shall arise at the time the
assessment list was received by the collector and shall continue until
the liability for such amount is satisfied or becomes unenforceable by
reason of lapse of time.
Such lien shall not be valid as against any mortgagee, purchaser, or
judgment creditor until the notice thereof has been filed by the
Section 191 of
Title 31, U.S.C.A., provides:
any person indebted to the United States is insolvent, or whenever the
estate of any deceased debtor in the hands of the executor or
istrator, is insufficient to pay all the debts due from the deceased,
the debts due to the United States shall be first satisfied * * *
was section 3466 of the Revised statutes of the
. It has been frequently interpreted and held not to create a lien on
the property of the creditor.
v. State of
523. In Spokane County v. United States, 279 U.S. 80, 73 L. Ed.
621 [1 USTC ¶387], the question of priority of the United States for
income tax and the State of Washington for personal property tax was
before the court. The taxpayer was insolvent and a receiver had been
appointed. The court held:
U.S. Rev. Stat. sec. 3466, requiring debts to the United States to be
first satisfied if the debtor is insolvent, taxes levied by the United
States, after the property of the insolvent passes into the hands of a
receiver, have priority over state taxes subsequently levied and those
levied before the property goes into the receiver's hands, if the proper
statutory steps have not been taken to fix a lien upon the property
prior to that time.
It is the
insolvency that causes the section to go into being or effect in so far
as the claim of the Government is concerned, and it is shown in the
instant case that prior to such insolvency the lien of the state for all
reported and unreported tax was perfected under the provisions of
section 12565, supra, causing the lien to attach on October 7,
1935, when the Olympic Company made a partial report to the Tax
Commission as to the taxes then due the state.
In In re
Caswell Const. Co., (D.C.N.Y. 1936) 13 Fed. (2d) 667, the court
said, in part:
be the law as to the status of taxes of the United States as an
attribute of sovereignty or as existing at common law, it is clear that
the United States may limit its priority by statute, when it does so
expressly and this it has done by sections 3466 and 3186 of the Revised
Statutes (Comp. St. secs. 6372 and 5908) and sections 64a and 67d of the
referred to is section 191 of Title 31, U.S.C.A., supra, relative
to insolvency estates.
Beasley & Hampton Inc. v. Shubert Theater Corp., et al., (D.C.
So. Dist. of N.Y.) 1934, 7 Fed. Supp. 399, wherein there was a contest
as to the priority of Federal and state claims for taxes, the court
is clear, therefore, that if the question of priority, as between the
two governments, depends on the comparative dates when their respective
liens on the property of the corporation had their inception, then the
state comes ahead, because it is conceded that the $81,000 proceeds of
sale of the property now held by the receiver, stands in the place of
To the same
effect is the holding of the court in City of Winston-Salem v. Powell
Paving Co., et al., (D.C. North Carolina 1934) 7 Fed. Supp. 425 [4
contends that before the lien for the $656.72 will benefit the State of
, it must be made perfect and specific. We find nothing in the case of
v. Maclay Rec'r., 288
290, cited by the Government which would be controlling in the instant
case. The court in that case held that the lien for taxes to the State
of New York might be good as against purchasers and mortgagees but not
against the United States under the priority statute; that as against
the United States it was nothing but an inchoate and imperfect lien
designated by the court as "merely a caveat of a more perfect lien
to come." The priority of the Government was based upon the fact
that no distraint or seizure had been made. As has been shown herein,
prior to the date that the Olympic Company was adjudged insolvent, which
would put the priority statute into action, and before the Government
perfected its lien for the first assessment on October 11, 1935, the
Oklahoma Tax Commission issued a tax warrant and a levy was made by the
sheriff on October 9th for the September taxes due the State. Under the
very decisions relied upon by the Government, the lien of the State of
Oklahoma was perfected and made specific and which is admitted by the
Government, but such admission is confined to the amount of taxes
actually reported as being due by the Olympic Company. Since under the
provisions of section 12573, O.S. 1931, as amended by Ch. 111, S.L.
1933, 68 Okl. St. Ann. 705, supra, the lien of the state was made
a first lien and to date from the date upon which the taxes became due
and delinquent, and since the lien extended to all of the taxes due,
whether reported or unreported and the additional sum found to be due
for the same period of time, we must conclude and hold that it consisted
of a single tax and one lien and was perfected and the right of the
state set up when the single levy was made without any additional
seizure of the property. The receiver being duly notified by the Tax
Commission of the extra sum found to be due for September we can see no
good reason why the entire claim should not be paid as one prior claim
when disbursement is made. We must therefore conclude that the trial
court committed error in not holding that the lien for all of the taxes
due the state from the Olympic Company for the month of September was
prior and superior to the lien of the
for taxes due it.
Taxes v. Labor Claimants]
It is the
contention of the Oklahoma Tax Commission that the taxes due the state
by the Olympic Company for both amounts found to be due for September,
1935, are entitled to priority over the claims of the laborers filed
contended on the part of the labor claimants O.T. McNeil, J.W. Miller,
Donald Pierce, L. Lingerfoot, Bob Mahoney, E. Hall, J.J. Crew, J.E.
Holmes and J.D. Brown, interveners herein, that their claims for labor
are based upon sections 11007 and 11011, O.S. 1931, which provide for a
lien on the production of their labor and for priority thereof. It is
further contended that the statutes under which the State of
claims its lien are in violation of section 57, article 5 of the State
Constitution and void, and if not void, no tax is due the state and no
basis exists for a lien. That if the state ever had a lien, it waived
same by taking other security for taxes.
B. White and T.H. White concur in the contentions of the United States
Government as to the priority of liens.
Let us review
some of the labor lien statutes as interpreted by the court. Section
11007, O.S. 1931, 42 Okl. St. Ann. 92, provides that where laborers
perform work under a contract, if unpaid, shall have a lien on the
production of their labor and the lien shall attach only while title to
the property remains in the original owner. In Pacific Petroleum Co.
v. Sunbeam Oil Co., 176 Okl. 293, 54 P. (2d) 1054, this court,
following the language of section 11011, O.S. 1931, 42 Okl. St. Ann. 96,
relative to precedence of liens, and the holding in Morley v.
McCaskey, 134 Okl. 50, 270 P. 1107, held that such lien for
production of labor takes precedence over all other liens, whether
created prior or subsequent to such laborer's lien. To the same effect
was the holding in
& Loan Ass'n. et al. v. White et al., 141 Okl. 240, 284 P.
889, relative to the lien of a prior mortgage. This court further held
in the Pacific Pet. Co. case, supra, that where the record
discloses that the lien statement was not filed within the time
specified in the statute and the record fails to disclose an excuse for
the failure to file such lien statement within the statutory time, the
lien claimant is not entitled to the statutory lien, and that filing a
lien claim with a receiver does not constitute a substantial compliance
with the statute as to filing liens.
further interpreting section 11007, O.S. 1931, in Haggard v. Sunray
Oil Co., 176 Okl. 81, 54 P. (2d) 662, held that a lien upon oil well
casing for labor performed in pulling such casing from an abandoned well
cannot be sustained under this section, for the reason that in such
case, the casing cannot be said to be "the production of their
Supply, Inc. v. Brady, 170 Okl. 590, 41 P. (2d) 820, this court
lien granted to a laborer under section 11007, O.S. 1931, (Sec. 7468,
C.O.S. 1921) and under section 11011, O.S. 1931 (Sec. 7472, C.O.S. 1921)
takes precedence over prior recorded mortgage, but is enforceable only
against the improvements which represent the production of the
the examination of previous decisions of this court, we find that the
cases wherein sections 7468 and 7472, C.O.S. 1921 are held to be
applicable are cases wherein the lien claimant has performed manual
labor with his own hands in the construction of an improvement upon real
estate, and in such case, it has been held that such a laborer has a
lien on the improvements so constructed by him, which is superior to a
prior mortgage against the real estate itself.
We fail to
find any case where the lien under this section was attempted to be
enforced except where the improvements were upon real estate.
O.S. 1931, is a labor lien statute and provides that any person who
furnishes labor for the production of, altering or repairing, of any
personal property at the request of the owner shall have a lien for the
value of his labor upon said personal property as provided for in
section 2 of the Act (sec. 11002, O.S. 1931) the lien to date from the
commencement of furnishing of labor. Section 11002, supra,
referred to, provides that the lien must be perfected by the filing of a
claim in the office of the county clerk.
picture of the various labor lien statutes and their interpretation by
this court before us, we will consider the status of the labor lien
claimants in the instant case. It is very evident that they cannot base
their claim under sections 11007 and 11011, O.S. 1931, supra,
relied upon, for the reason (1) no real estate is involved; (2) the
record shows that they did not perfect their lien as required by law. Pacific
Petroleum Co. v. Sunbeam Oil Co., supra.
claimants cannot rely upon section 11001, O.S. 1931, supra,
relative to lien for altering and repairing personal property, even
though we were to hold that the lien was applicable in the manufacturing
of such products as are here in controversy, since section 11002, supra,
specifically requires that such lien must be perfected by the filing of
a lien claim in the office of the County Clerk which was not done in the
It is very
apparent that the original petitions in intervention filed herein on the
part of the claimants for labor performed came within section 10999,
O.S. 1931, relative to insolvent corporations and estates. The petitions
state, in substance, that the laborers worked for the Olympic
Corporation and that certain sums were due them and unpaid; that the
corporation was insolvent; that their liens were prior to other liens.
This section requires no specific act on the part of the lien holder for
the protection of his lien. It is true that these labor claimants,
later, filed amended petitions attempting to bring their cause within
section 11007, supra, which, as we have shown, was without avail.
O.S. 1931, referred to, provides, in substance, that when a corporation
doing business in this state shall become insolvent, the employees
performing labor or services in regular employment, shall have a lien
upon the assets of such corporation for the amount of salary or wages
which shall have accrued prior to the adjudication of the insolvency of
such corporation, "which lien shall be paid prior to any other
debts, charges or claims against said corporation, except taxes due the
United States Government or the State of Oklahoma."
If it were
conceded that the laborers had an existing lien under the provisions of
section 11007, supra, and that the property involved was the
production of their labor, or had such lien under the provisions of
section 11001, supra, for altering or repairing personal
property, and the lien claim had been perfected by filing same in time
with the Clerk, then their liens would be inferior to the lien of the
State of Oklahoma, because of the more recent statutes quoted herein
relative to liens for state taxes. Sections 12565 and 12573, O.S. 1931,
as amended by sections 8 and 13, of Chapter 111, S.L. 1933, supra,
and the provision in the latter Act which has a section repealing all
laws or parts of laws in conflict therewith.
therefore, conclude and hold that the claim and lien for the taxes due
the State of
herein, is a superior lien to that of the lien for labor filed herein,
and that such lien for the state includes all of the taxes found to be
due the state for September, 1935.
v. Labor Claimants]
now the priority of the lien of the United States Government and the
lien of the labor claimants, we think that under the provisions of
section 10999, supra, the lien of the Government is superior to
that of the laborers. This section also was enacted long after the
enactment of section 11007 or section 11001, supra, and gives a
prior lien in favor of both the State and Government. Further, we think
that under the provisions of section 191 of Title 31, U.S.C.A., supra,
(formerly section 3466 of Revised Statutes of the U.S.) as interpreted
and quoted in Spokane County v. United States, supra, the
Government would have a superior lien to that of the labor claimants,
since no proper statutory steps had been taken to fix the lien of the
laborers prior to the time the property passed into the hands of a
Title & Tr. Co., Trustee, v. Title Guaranty & Surety Co.,
224 U.S. 152, 56 L. Ed. 706, that court, construing section 3466, U.S.
Comp. Stat. 1901, supra, in the light of the act of July 1, 1898,
relative to priority of claims of the United States and claims for labor
in bankruptcy cases, said:
claims are given priority, and it is provided that debts having priority
shall be paid in full. The only exception is taxes legally due and owing
by the bankrupt to the
, state, county, district or municipality.
Valley Canal Co. v. Howard Brown, et al., Trustee, 274 U.S. 630, 71
L. Ed. 1243, that court, speaking of the superior lien rights under the
Cary Act project passed by Congress, said:
is, of course, an implied term of every lien statute that the lien
authorized is subordinate to liens of taxes.
cited Continental & Commercial Trust & Sav. Bank v. Warner,
601, 215 P. 458, construing the same in which the court held: "a
lien for taxes is superior and prior to the lien of a Carey Act
contract." We hold, therefore, that the lien of the United States
Government for taxes due it by the Olympic Refining Company is superior
to the lien of the labor claimants filed herein.
The labor lien
claimants assert that the lien claimed by the State should be denied
because the portions of the statutes under which it is claimed were
promulgated as provisions of an amendatory act and that the provisions
or similar provisions were not incorporated in sections of the statute
amended. They therefore urge that a consideration and application of
section 57, of article 5, of the Constitution of Oklahoma demonstrates
the invalidity of the portions of the act referred to in view of the
holdings of this court. Gilmer v. Hunt, 167 Okl. 175, 29 P. (2d)
59; Nixon v. Wright, 69 Okl. 159, 36 P. (2d) 280; Board of
Com'rs. of Pott.
v. Alexander, 68 Okl. 126, 172 P. 436.
threshold of this question, we are confronted with the suggestion that
the record does not indicate its presentation in the trial tribunal, and
that therefore we are not authorized to treat it on appeal in view of
those cases holding that questions relating to the constitutionality of
statutes will not be considered for the first time on appeal. Duffy
v. Scientific American Comp. Dept., 30 Okl. 742, 120 P. 1088; Fast
v. Gilbert, 102 Okl. 245, 229 P. 275; M.K. & T.R. Co. v.
Prince, Co. Treas., 133 Okl. 228, 271 P. 253.
alluded to is but a concrete application of the more general rule that a
case presented to this court on appeal will not be decided upon a theory
different than that presented to the trial court, or sometimes stated in
a prohibitive manner, that the parties will not be allowed to change
their theory on appeal.
This is a rule
of practice of general application. It is based upon practical necessity
istration of the law and does not denote a limitation of the power of
the appellate tribunal (3 Am. Jur. 26 and 32). It is not without
exception or limitation. Thus where questions of public policy or
widespread public interest are involved an appellate court may review a
cause on a theory not presented in the trial tribunal. Magnolia Pet.
Co. v. State, 175 Okl. 11, 52 P. (2d) 81; Shaffer Oil & Ref.
, 175 Okl. 6, 52 P. (2d) 76. See also 3 Am. Jur. 35. The wisdom of
this exemption is, we think, self evident, for the rule itself is one of
practice and designed to limit the scope of inquiry on appeal strictly
to the controversy as it was presented to the lower tribunal. It is fair
to the parties, however, when the question is of such a nature that the
present welfare of the people at large, or a substantial portion
thereof, is involved that the consideration of their rights merits a
departure from the general rule and authorizes the court in its
discretion to direct its attention to the general welfare, rather than
the interests of the parties to the immediate cause.
to General Rule]
exception to the general rule applies with equal force to the narrower
concrete rule applying the principle to questions relating to the
constitutionality of statutes is self-evident.
here involved relates to taxation. It is a matter of daily and vital
concern to the commonwealth. The tax collecting authorities are
operating under it constantly. We regard the interest of the public
sufficiently involved to bring the matter within the exception
mentioned, supra, and shall therefore consider the matter on its
merits rather than dispose of it under the general rule of appellate
procedure. We therefore return to a consideration of the constitutional
Section 57, of
article 5, of the Oklahoma Constitution provides:
act of the Legislature shall embrace but one subject, which shall be
clearly expressed in its title, except general appropriation bills,
general revenue bills, and bills adopting a code, digest, or revision of
statutes; and no law shall be revived, amended, or the provisions
thereof extended or conferred, by reference to its title only; but so
much thereof as is revived, amended, extended, or conferred shall be
reenacted and published at length; Provided. That if any subject be
embraced in any act contrary to the provisions of this section, such act
shall be void only as to so much of the law as may not be expressed in
the title thereof.
It is pointed
out that the sections of the statute under which the state is claiming
its lien are sections 12,565 and 12,573, as respectively amended by
sections 8 and 13 of chapter 111, Session Laws 1933, and it is urged
that the sections as they were worded prior to the amendment were
insufficient to authorize a lien on the property as previously upheld in
this opinion. It is urged that the language under which it was created
was brought into the act by the 1933 amendment and being a new and
different provision could not be properly justified in an amendatory
In the case of
, 68 Okl. 126, 172 P. 436, relied upon by lien claimants, this court
a particular section of a law may by amendment be broadened so as to
bring within its provisions matter which could logically and legally
have been placed in it originally, such new matter must be something
which had not been already specially and differently provided for in
another section of the same statute and to which section no reference is
made in the amendatory law. (Italics ours.)
this rule relating to the proper breadth of acts amending, particular
statutory provisions in mind, we address ourselves to the title of the Act
now before us. It reads:
ACT amending Sections 12549, 12550, 12551, 12556, 12557, 12562, 12563,
12565, 12566, 12567, 12569, 12571, 12573, and 12529 Oklahoma Statutes,
1931, relating to, and providing for, the enforcement of the Gasoline
Excise Tax Laws and the Collection of Tax thereunder by the Oklahoma Tax
Commission; defining the term 'Gasoline' and other terms; prescribing
additional penalties for violation of the Gasoline Excise Tax Laws and
authorizing additional Rules and Regulations pertaining thereto;
defining Embezzlement and Perjury, for violation of this Act and
prescribing penalties; further extending provision for injunction and
giving the Commission authority in certain cases to declare the Excise
Tax due and payable forthwith; authorizing excise of discretion by
Commission in Issuance, Extension, Reinstatement, Suspension and
Cancellation of Licenses; declaring what may be admitted as evidence in
certain cases; repealing conflicting laws and declaring an emergency.
Both of the
sections with which we are here concerned, and which were amended by
chapter 111, S.L. 1933, supra, were before amendment a part of
chapter 66, S.L. 1931, the title of which read:
ACT providing for the enforcement of the gasoline excise tax laws, and
the collection of taxes thereunder, by the Oklahoma Tax Commission;
providing for rules and regulations by said Commission, and for the
expense of such collection and enforcement; prescribing penalties for
the violation of this Act; exempting certain purchasers from payment of
said excise taxes; providing for the disposition of the monies collected
hereunder; repealing conflicting laws, and for other purposes.
both the amended act and the amendatory act, especially the particular
sections herein involved, relate to the "enforcement of the
gasoline excise tax."
authorized by the amendatory sections is but a method of enforcement. It
could have been originally included in the amended sections. Thus the
law was by amendment "broadened" so as to bring within its
provisions matter which could logically and legally have been placed in
We are of the
opinion that the provisions of the amendatory act authorizing the lien
were, "in view of the subject matter of the sections amended"
within the proper purview of the amendatory act and free from objection
upon consideration of section 57, article 5, of the Oklahoma
authorities supporting the view herein announced are: Fox v. Dunning
et al., 124 Okl. 228, 255 P. 582; Dunlap v.
, Board of Commissioners, 85 Okl. 295, 205 P. 1100; Griffin et
al. v. Thomas,
, et al., 86 Okl. 70, 206 P. 604; State ex rel. City of Durant v.
Bonner, County Treasurer, 86 Okl. 280, 208 P. 825; Protest of
Chicago, R.I. & P. Ry. Co., 162 Okl. 68, 19 P. (2d) 152.
of the trial court is reversed with directions to enter judgment as
chattel mortgage of the First National Bank of Alex shall be fixed as a
first and valid lien upon the property herein involved,
priority of the various claims filed and found to exist and to be paid
in the following order:
(a) The claim
of the State of
by the Oklahoma Tax Commission for taxes in the sum of $1,943.00,
(b) The claim
of the United States Government for taxes in the sum of $2,855.66,
(c) The claims
of the labor lien claimants, claims to be paid in proportion as provided
in the judgment of the trial court.
CORN, V.C.J., and BAYLESS, GIBSON, and HURST, JJ., concur.
DAVISON, JJ., dissent.
¶9645]Schaumburg State Bank, Plaintiff-Appellee v. Walter J. Seyffert,
Ruby A. Seyffert, American National Bank and Trust Company of Chicago,
Chicago Federation of Musicians, Local 10-208, Western Illinois
University, Woodfield Bank and Unknown Owners, Defendants-Appellees, and
United States of America, Defendant-Appellant
Appellate Court, First Dist., 78-1479, 5/4/79
[Code Sec. 6323 and prior bankruptcy law]
Lien for taxes: Bankrupt taxpayer: Validity and priority of lien.--A
tax lien assessed, perfected and filed after the filing of a voluntary
bankruptcy petition constituted a valid lien against real property of
the bankrupt. Thus, a trial court decision declaring that the tax lien
was void was vacated, and the case remanded so that the proceeds from
the sale of the real property could be redistributed among all the
creditors, including the
. According to the appellate court, bankruptcy rules prohibited neither
post-petition assessment of tax deficiencies nor post-petition
perfection of a tax lien. The court noted that the opposite result would
probably be reached under the provisions of the Revised Bankruptcy Act,
effective October 1, 1979.
MEJDA delivered the opinion of the court:
United States of America
U. S. A.
), appeals from orders granting summary judgment to co-defendant,
Chicago Federation of Musicians, Local 10-208 (
), and approving a decree for private sale of certain real estate. On
appeal, U. S. A. contends that the trial court erroneously declared a
Federal tax lien void and thereby subordinated it to a subsequent
judgment lien on either of two grounds: (1) because Rule 601 of the
Rules of Bankruptcy Procedure (11 U. S. C. (1976)) prohibits perfection
of a tax lien after filing of a voluntary petition for bankruptcy; or
(2) because the underlying tax liability had been discharged in
December 13, 1977
, plaintiff, Schaumburg State Bank, brought suit against Walter J. and
Ruby A. Seyffert to foreclose a mortgage executed by them on
May 15, 1976
, and recorded on
May 24, 1976
. U. S. A., American National Bank and Trust Company of Chicago
(American National), the Union,
(Western), Woodfield Bank (Woodfield), and Unknown Owners were named as
defendants who might have some right, title, interest or lien in the
subject real estate. The complaint also stated that
U. S. A.
had filed a notice of tax lien against Walter J. Seyffert in the amount
of $14,747.84. From a later amendment to the complaint, it appears that
this notice was filed in the Recorder's Office on
February 25, 1977
, as document number 23831506.
not admit or deny the allegations of the complaint but claimed to be
judgment lien creditor of Ruby A. Seyffert in the amount of $2,079.16 by
filing a copy of the judgment in the Recorder's Office on
February 25, 1977
, as document number 23832210.
claimed to be a judgment lien creditor of Ruby A. Seyffert in the amount
of $474.25, a copy of which was filed with the Recorder's Office as
document number 24121942.
U. S. A.
answered that it claimed an interest in the property by reason of
assessment, demand, and notice of tax lien filed as alleged in
's complaint. It denied that its claim was subordinate to plaintiff's
claim and sought to have the property sold and the funds distributed to
the competing parties according to their priorities as the court would
An order of
default was entered against the Seyfferts, American National, and the
Unknown Owners for their failure to answer. Schaumburg then moved for
summary judgment against the
U. S. A.
contending that since it had recorded first, its lien was superior to
U. S. A.
's. Summary judgment was granted. That order is not challenged in this
The union then
answered Schaumburg's complaint, claiming to be a judgment lien creditor
of Walter J. Seyffert in the amount of $49,691.25 by reason of
nondischargeable judgment entered on July 21, 1977, by the Bankruptcy
Court in Walter Seyffert's bankruptcy proceeding. 1
A memorandum of this judgment was filed with the Recorder of Deeds on
July 21, 1977, as document number 24023209. The Union also moved for
summary judgment against U. S. A. contending that: (1) the filing of the
notice of Federal tax lien after Walter Seyffert's filing of a voluntary
petition for bankruptcy violated Rule 601(a) of the Rules of Bankruptcy
Procedure (11 U. S. C. (1976)), and the tax lien was of no force; and
(2) the tax indebtedness of Walter Seyffert was discharged in the prior
bankruptcy proceeding, citing In re Sotelo (7th Cir. 1977) [77-1
USTC ¶9307], 551 F. 2d 1090.
court entered an order granting
's motion for summary judgment on March 30, 1978, finding that:
"The filing of the notice of lien on February 25, 1977, without
authorization of the Bankruptcy Court, was a void act in violation of
Bankruptcy Rule 601" and declaring the lien void and thereby
discharged. A motion to reconsider and set aside this order was denied
on April 28, 1978.
On May 26,
filed a motion for a decree approving a private sale in lieu of
foreclosure and attached a copy of a real estate contract entered into
by the Seyfferts and certain purchasers. An order was entered June 5,
U. S. A.
's motion for the trial court to reconsider the order of summary
judgment for the
, deny the decree for a private sale, and declare the real estate
On June 5,
1978, the trial court then entered a decree approving the private sale,
that the U. S. A. had no lien upon the real estate 2
and that the sale proceeds be disbursed to plaintiff and the lien
creditors as set forth in plaintiff's motion.
U. S. A.
brings this appeal seeking to have: (1) the private sale set aside; (2)
the priorities of all parties reestablished; and (3) a judicial sale of
the property and dismissal of
's complaint. 3
U. S. A.
attacks the two apparent beses for the trial court's order granting
summary judgment for
: (1) that the tax liability of the debtor had been discharged in
bankruptcy; and (2) Rule 601(a) of the Rules of Bankruptcy Procedure
prohibits perfection of the tax lien after the filing of the petition
may have been support for the trial court's order on the basis that
Seyffert's tax liability had been discharged in bankruptcy, it is clear
that this is not now the law. At the time of the order, In re Sotelo
(7th Cir. 1977) [77-1 USTC ¶9307], 551 F. 2d 1090, held that the
taxpayer's liability under Internal Revenue Code §6672 (26 U. S. C. §6672),
the section under which Mr. Seyffert's liability arose, was a penalty
and not a tax, and was therefore discharged under section 17a(1) of the
Bankruptcy Act. (11 U. S. C. §35(a)(1) (1976).) The Supreme Court
reversed the court of appeals, holding that the tax liability was not
dischargeable under Bankruptcy Act §17a(1)(e). (United States v.
Sotelo [78-1 USTC ¶9446], 436
1795, 56 L. Ed. 2d 275.) As both parties concede, the trial court's
order cannot be justified on the ground that the tax liability was
discharged in bankruptcy.
justification is that Rule 601(a) of the Rules of Bankruptcy Procedure
C. (1976)) prohibits perfection of the tax lien after the filing of the
petition for bankruptcy. That rule provides:
Stay Against Lien Enforcement. The filing of a petition shall
operate as a stay of any act or the commencement or continuation of any
court proceeding to enforce (1) a lien against property in the custody
of the bankruptcy court, or (2) a lien against the property of the
bankrupt obtained within 4 months before bankruptcy by attachment,
judgment, levy, or other legal or equitable process or
Committee's note to this section makes it clear that the purpose of the
rule is "to protect creditors against prejudicial dismemberment and
disposition of the estate before a trustee or receiver can
U. S. A.
contends that a distinction is drawn between enforcing a lien which
would interfere with the
istration of the bankruptcy estate and merely perfecting a lien to
preserve priority vis a vis other creditors. It is argued that
since there is no interference with the debtor's property by perfection
of the tax lien, the purpose of Rule 601(a) is fulfilled.
maintains that "any act" to enforce a lien is prohibited.
U. S. A.
v. A Certain Parcel of Land, Etc. (D. Mass. 1944), 59 F. Supp.
65, in support of its position. Regarding this issue the court said:
recording of the notice of lien did not, in my opinion, constitute 'any
act or other proceeding to enforce a lien,' but rather established or
perfected the lien. I do not feel that Congress intended, by section
548, to stay or prevent the establishment or perfection of a lien."
(59 F. Supp. 65, 69.)
issue was recently raised under the stay provisions of Rule 11-44 of the
Rules of Bankruptcy Procedure (11
C. (1976)) which is applicable in Chapter XI proceedings under the
Bankruptcy Act (11
C. §§ 701-799 (1976)) in the case of In re Marietta Baptist
Tabernacle, Inc. (5th Cir. 1978), 576 F. 2d 1237. The court held
taht recording a notice of a claim of lien does not constitute an act to
enforce, but merely preserves the lien and does not dispose of property.
Rule 11-44 and
Rule 601 which is involved in this case are similar in their provisions
and purpose (see Baum v. Anderson (5th Cir. 1976), 541 F. 2d
1166) and we feel the interpretation of the former is applicable to the
latter. We agree with this reasoning and find that the filing of the
notice of tax lien in the instant case did not act to dismember the
assets in bankruptcy, but perfected
U. S. A.
's position as a lien creditor and as such was not an attempt to enforce
U. S. A.
in the present case not only perfected its lien after the bankruptcy
petition was filed, but also created the lien afterwards. Internal
Revenue Code §6322 (26
C. §6322) provides:
another date is specifically fixed by law, the lien imposed by section
6321 [dealing with liens for nonpayment of taxes] shall arise at the
time the assessment is made and shall continue until the liability for
the amount so assessed (or a judgment against the taxpayer arising out
of such liability) is satisfied or becomes unenforceable by reason of
lapse of time."
In order to
perfect this tax lien against certain persons, Internal Revenue Code §633
(26 U. S. C. §6323) requires the further step of notice filing, which,
in the case of real estate, must be filed under state law in the
recorder's office of the county where the property is located.
In the instant
case the bankruptcy petition was filed on
February 4, 1977
, the tax assessment made on
February 21, 1977
, and the notice filed on
February 25, 1977
U. S. A.
was not only perfecting a lien after the bankruptcy petition but did not
cause the lien to arise until the assessment on February 21, 1977. Until
U. S. A.
had a potential claim for taxes against Mr. Seyffert. There is a
question of whether the act of assessment by
U. S. A.
is prohibited by the stay in the Bankruptcy Court. Rule 401 of the Rules
of Bankruptcy Procedure (11
C. (1976)) provides for the stay of actions founded on an unsecured
provable debt as opposed to enforcement of a lien which Rule 601
addresses. Rule 401(a) provides:
of Actions. The filing of a petition shall operate as a stay of the
commencement or continuation of any action against the bankrupt, or the
enforcement of any judgment against him, if the action or judgment is
founded on an unsecured provable debt other than one not dischargeable
under clause (1), (5), (6), or (7) of section 35(a) of this title."
would not stay the assessment of the tax debt since this liability is
non-dischargeable under section 17a(1)(e) of the Bankruptcy Act (11 U.
S. C. 35(a)(1)(e) (1976)). (United States v. Sotelo [78-1 USTC ¶9446]
(1978), 436 U. S. 268, 98 S. Ct. 1795, 56 L. Ed. 2d 275.) It is also
noted that Internal Revenue Code §6871(a) (26
C. §6871(a)) expressly provides for immediate aessessment of tax
deficiencies upon the filing of a petition for bankruptcy. These two
provisions make it clear that the assessment of the tax deficiency after
the filing of the bankruptcy petition was not prohibited by Rule 401 of
the Rules of Bankruptcy Procedure.
contended that under the Revised Bankruptcy Act, Act of
November 6, 1978
, Pub. L. No. 95-598, 92 Stat. 2549, to be codified in 11 U. S. C.,
effective October 1, 1979, the action taken by U. S. A. would be
prohibited by the stay provisions of section 362 and that this section
was intended to be declarative of existing law. An examination of
section 362 and the legislative history of the act shows that the
assessment and recording of the tax lien in the instant case would be
prohibited under the Revised Bankruptcy Act. However, that act is not
applicable to the present case. In addition, the major purpose of the
act is the modernization of the bankruptcy laws. (See H. R. Rep. No.
95-595, 95th Cong., 2d Sess. 3, reprinted in 
Code Cong. & Ad. News, Bankruptcy Law Revision, 179, 181; S. Rep.
No. 95-989, 95th Cong., 2d Sess. 2, reprinted in  U. S. Code Cong.
& Ad. News, Bankruptcy Law Revision, 3, 4.) Concerning the automatic
stay of section 362 the House Report noted:
automatic stay in H. R. 8200 [section 362] differs in some ways from the
stays provided by the Rules of Bankruptcy Procedure today. The new stay
expands coverage in some areas, reduces it in others, and clarifies many
uncertain aspects of the current provisions." H. R. Rep. No.
95-595, 95th Cong., 2d Sess. 174, reprinted in 
Code Cong. & Ad. News, Bankruptcy Law Revision, 179, 351.
scope and purpose of the new stay provisions of section 362 are not
identical with Rule 601, we defer to case law construing the latter and
holding that perfection of a lien after the filing of the bankruptcy
petition does not violate Rule 601. Since neither the assessment of
taxes violated Rule 401(a) nor the filing of tax notice violated Rule
601(a), and the tax liability of Mr. Seyffert was not discharged in
bankruptcy, the trial court erred in finding U. S. A.'s lien void.
that this appeal should be dismissed as moot since
U. S. A.
failed to seek a stay or supersedeas of the decree allowing private sale
and distribution of the proceeds. Because of this it would be futile to
accord the tax lien priority in property in which the debtor has no
interest. Union relies on First Nat. Bank of
v. Road Dist. No. 8 (1944), 322
App. 293, 54 N. E. 2d 847, which admittedly supports their position.
However, this case was reversed in First Nat. Bank of Jonesboro v.
Road Dist. No. 8 (1945), 389 Ill. 156, 58 N. E. 2d 884 where the
court answered a similar contention as follows:
is not reasonable to suppose that the legislature intended that a
judgment or decree for the payment of money should, upon its enforcement
by execution or otherwise, in the absence of a supersedeas
pending an appeal, become final and no longer subject to review, so as
to require the dismissal of the pending appeal, notwithstanding
provision is expressly made for the prosecution of an appeal without supersedeas.
A party to a suit is presumed to know of all the errors in the record,
and such party cannot acquire any rights or interests based on such
erroneous decree that will not be abrogated by a subsequent reversal
thereof. If such party has received benefits from the erroneous decree
or judgment, he must, after reversal, make restitution, and, if he has
sold property erroneously adjudged to belong to him, he must account to
the true owner for the value. Titles acquired by parties to the record
under an erroneous decree or judgment will be divested by the subsequent
reversal of such decree or judgment. [Citations.] A party to a decree
cannot acquire any rights thereunder while the same is subject to review
which he can assert after the decree is reversed, since the effect of
the reversal is to abrogate the decree and leave the cause as it stood
prior to the entry of the decree." 389
also cites Supreme Court Rule 305(i) (Ill. Rev. Stat. 1977, ch. 110A,
par. 305(i)) as authority for its position. That rule specifically
protects rights and interests of non-parties in the absence of a stay of
judgment and would not protect the rights of
, a party below, from reversal on appeal. Rule 305(i) and the First
Nat. Bank of Jonesboro case are consistent and make clear that
U. S. A.
's failure to seek a stay or supersedeas does not render this appeal
U. S. A.
has a valid and subsisting lien on the subject property, superior and
prior to the judgment lien of
we reverse the trial court's orders of: (1) March 30, 1978, granting
Union summary judgment against U. S. A. and declaring U. S. A.'s tax
lien void; (2) April 28, 1978, denying U. S. A.'s motion to reconsider
the order granting summary judgment; and (3) June 5, 1978, denying U. S.
A.'s motion to deny plaintiff's motion for decree approving private
sale. We vacate the decree of
June 5, 1978
, and remand the cause for further proceedings consistent with this
WILSON, JJ., concur.
Although not a part of this record, it appears from appellant's brief
that the real property subject to the foreclosure suit was not part of
the bankruptcy estate since the proceeding was closed as a "no
The property was sold for $77,000. The amounts to be distributed
--mortgage payment $40,455.99; (2) Western $572.50; (3) Woodfield
$2,340.95; and (4) Union $26,540.32.
U. S. A.
have filed briefs on appeal. In its brief
U. S. A.
states that it is immaterial whether Woodfield's and Western's judgments
are subordinated to the tax lien, since the proceeds are sufficient to
cover all three.
¶9419]In re R & M Container Co., Inc., Bankrupt, Henry A. Stikes,
Sr., Trustee, Plaintiff v. The
United States of America
S. District Court, So. Dist.
, So. Div., Civil Action No. 74-538-P, 3/12/75
[Code Sec. 6323]
Validity of tax lien: Filing of notice: Clerk of District Court.--The
Bankruptcy Judge's decision that the government had not perfected its
lien by filing with the Clerk of the District Court was upheld.
Childress, P. O. Box 1465, Mobile, Ala., for bankrupt, Herbert P.
Feibelman, P. O. Box 2082, Mobile, Ala., for plaintiff. Edward J.
Vulevich, Jr., Assistant United States Attorney,
, for defendant.
This is an
appeal of the order of the Bankruptcy Judge entered in this suit on
November 5, 1974
. Pursuant to Rule 806, the appellant
has designated the record for appeal and has stated the sole issue to be
properly filed its notice of tax lien with the appropriate party to
establish a valid lien against property held by the Trustee. The
Bankruptcy Judge decided that the government had not perfected its lien
by filing with the Clerk of the District Court as required by 26 U. S.
C. §6323. Hoover v. McCullough Industries [73-1 USTC ¶9237],
351 F. Supp. 1023 (S. D. Ala. 1972). The government admits its failure
to file with the District Clerk but contests the validity of the
decision and has previously sought to have this court reverse its
previous holding. See White Construction Co. v. Southland Investment
Co. [74-2 USTC ¶9693], C. A. 74-350-P; Wade v. United States,
C. A. 75-31-P.
raised on this appeal has been thrice decided adversely to the
and these precedents are controlling here.
therefore ORDERED, ADJUDGED and DECREED that the dcision of the
Bankruptcy Judge should be, and is hereby, AFFIRMED.
taxed to the appellant.
¶9499]Latipac, Inc., Plaintiff v. General Tire & Rubber Co., et
S. District Court, No.
, No. C-69 469 SC, 346 FSupp 1043,
[Code Sec. 6323]
Lien for taxes: Priority: Summary judgment: Place of filing tax lien:
Intangible property: Other liens: Genuine question of fact.--The
Government was awarded a partial summary judgment as to its Federal tax
lien, where the lien was properly filed in the taxpayer's domicile with
respect to intangible property. As to the liens of other creditors,
however, there was a genuine issue of fact as to priority, thus
precluding summary judgment for them.
Bartko, Burd, Hunt & Friedman, One Maritime Plaza, Suite 745, San
Francisco, Calif., Jay P. Sanders, Tinning & Delap, 1617 Bonanza
St., P. O. Box 4713, Walnut Creek, Calif., for plaintiff. James L.
Browning, Jr., United States Attorney, Edward O. C. Ord, Assistant
United States Attorney, San Francisco, Calif., Bruce D. Gillies,
Donahue, Gallagher, Thomas & Woods, 1417 Central Bldg., 436 14th
St., Oakland, Calif., for General Tire & Rubber Co.; Stephen M.
Chandler, Chandler & Bruner, 220 Juana Ave., San Leandro, Calif.,
for Braddock, Logan & Valley; Joseph H. Inglese, Roger M. Hughes,
1255 Post St., San Francisco, Calif., for Stores Collection Bureau of
Alameda County and Anderson & Perkins, Inc.; Edward N. Jackson, 1255
Post St., San Francisco, Calif., for California Collection Agency, Inc.;
Donald E. Anderson, 550 Montgomery St., San Francisco, Calif., for
George Ballard Co.; Peter Kakures, 337 17th St., Oakland, Calif., for
Collection Service, Inc.; Nat Frankel, 502 Bank of Commerce Bldg.,
Oakland, Calif., for G. Delaney; Hardin, Fletcher, Cook & Hayes,
1956 Webster St., Oakland, Calif., for Oliver DeSilva, Inc.; Roy E.
Hamrick, 438 Estudillo Ave., San Leandro, Calif., for San Leandro Rock
Co.; John F. Wells, Stark, Stewart, Simon & Sparrowe, Financial
Center Bldg., Franklin & 14th Sts., Oakland, Calif., for R. M. Lee;
Evelle J. Younger, Attorney General, William J. Shaw, Deputy Attorney
General, 500 Wells Fargo Bank Bldg., 5th St. & Capitol Mall,
Sacramento, Calif., for State of Calif., Director of Human Resources
Development, for defendants.
This is an
action in interpleader which was originally filed in the Superior Court
of the State of
, in and for the
. The case is presently before the court on individual motions for
partial summary judgment by defendants United States of America, Oliver
De Silva, Inc., General Tire and Rubber Co., and Braddock, Logan &
Valley Co. The undisputed facts can be summarized as follows:
Latipac, Inc., became a judgment debtor of J. W. Lee & Co. in the
amount of $150,000.00, upon the entry of a judgment in its favor in said
amount in a civil action in the
. Pursuant to a stipulated Consent to Entry of Judgment in said Superior
Court case, the judgment debtor, Latipac, Inc., on October 23, 1969,
filed this action in interpleader in the Superior Court of Marin County
and pursuant thereto paid a fund of $90,390.73 into the registry of that
subsequently removed the action to this district court.
[Basis of Claims]
Most of the
defendants claims are based on liens on the chose in action underlying
the interpleded fund which were derived from "order for Lien"
granted by the Superior Court of Marin County in J. W. Lee & Co.'s
action against Latipac, Inc. These liens were obtained pursuant to
Section 688.1 of the California Code of Civil Procedure. The claim of De
Silva is based on a written assignment of certain funds (Table I) and
the claim of the State Compensation Insurance Fund is based on a
"stipulation for Lien" (Table I). The liens of the
are based upon unpaid assessments of internal revenue taxes made against
J. W. Lee & Co., notices of federal tax liens filed, and levies made
on the plaintiff Latipac in respect of said assessments. (See Table II).
to each of the motions for partial summary judgment, the findings of
this court are as follows:
for Partial Summary Judgment in Favor of the
of the Internal Revenue Code of 1954 provides for the imposition of a
tax lien upon all property and rights to property in which the
delinquent taxpayer has an interest. It arises as a secret lien,
effective from the date of the assessment of the tax. Section 6323,
however, provides that as to certain groups--purchasers, holders of
security interests, mechanics lienors or judgment creditors--the
government's tax lien is not valid until it is filed in the office
designated by state law for such tax lien filings.
federal tax liens over competing liens is a matter of federal law. United
States v. Acri [55-1 USTC ¶9138], 348
v. Equitable Life Ass. Soc. of the U. S. [66-1 USTC ¶9444], 384
323 (1966); United States v. Vermont [64-2 USTC ¶9520], 377
351 (1964). In determining the priority of federal tax liens and
non-federal liens, the common law rule of "first in time is first
in right" controls.
v. Equitable Life Ass. Soc. of
, supra. "However, in determining the priority of liens against
a government tax lien, the one which is first in time will be deemed
first in right if, and only if, the one first in time is specific and
perfected in the federal sense." United States v. Truss Tite,
Inc. [68-1 USTC ¶9296], 285 F. Supp. 88 (S. D. Texas 1968).
Therefore, only a lien which is perfected prior to the date that the
federal tax is assessed (or before the federal tax lien is filed if
competing lien is covered by Section 6323) will be entitled to priority
over the federal lien.
In the instant
case most of the defendants claim to have perfected judgment liens on
the fund and, accordingly, come within the protection of Section 6323, e.g.,
the government's lien will not be valid as to them unless it is properly
In looking at
Tables I and II, it is clear that only three claimants contend that they
have liens on the chose in action which arose prior to May 13, 1965, the
latest date that any of the federal tax liens were filed. The total of
these three claims plus the government's claim does not exhaust the
fund. Therefore, even if we assume that the liens of Oliver De Silva,
Inc., General Tire & Rubber Co. and State of
, Director of Employment have priority over the Government's liens, the
government is entitled to summary judgment if it has properly filed its
of Federal Liens]
provides that federal tax liens are to be filed in the office designated
by state law for such tax lien filings. Prior to January 1, 1968,
law (Calif. Government Code §27330) required the filing of notices of
federal tax liens to be made "in the office of the county recorder
of the county within which the property subject to the lien is
situated." In the present case the question arises as to where
the intangible personal property "is situated".
contends that intangible personal property is situated in the domicile
of the taxpayer, which in the case of a corporation is the county in
which its principal place of business is located. Accordingly it filed
its liens in
of Intangible Property]
to the government's motion for summary judgment, defendant Braddock,
Logan & Valley contends that the situs of a cause of action is the
county in which the cause of action is being prosecuted--where the
personal property itself is located.
This court is
not aware of any
decision which discusses the situs of intangible personal property
within the meaning of Section 27330 of the California Government Code.
However, in United States v. Sprekels [43-2 USTC ¶9572], 50 F.
Supp. 789 (N. D. Calif. 1943), the district court held that with regard
to the taxpayer's intangible personal property the proper place for
filing of government tax liens is in the county where the taxpayer
resides--the situs of such property. Although the court did not
law, it must have considered said law as it was controlling with respect
to the proper place to file government tax liens.
Further, it is
generally held that the situs of intangible personal property is the
domicile of its owner. In the absence of a contrary statutory or common
law definition of the situs of personal property within the meaning of
Section 27330, this court feels that the most reasonable construction is
that the taxpayer's domicile is the situs of all of his intangible
it is the finding of this court that the
properly filed its tax liens in
, the principal place of business of J. W. Lee & Co. From the
affidavits on file with this court it is clear that there is no genuine
issue of fact with respect to the motion of the
for summary judgment and, therefore, it is the order of this court that
said motion be, and it hereby is, granted. The
shall prepare a form of judgment in accordance with the foregoing.
for Partial Summary Judgment in Favor of Oliver De Silva, Inc.
Oliver De Silva, Inc. contends that prior to April 25, 1963, it
completed certain paving work for J. W. Lee & Co. On April 25, 1963,
Oliver De Silva, Inc. accepted from J. W. Lee & Co., as payment for
said paving work, a promissory note in the sum of $10,343.80,
accompanied by an assignment from J. W. Lee & Co. of $10,343.80 of
the monies due to Lee from Latipac, Inc. for work done on the Peacock
Gap Subdivision No. 2. Subsequently, the sums due from Latipac to J.
W. Lee became the subject of an action filed in the
as discussed, supra.
Silva, Inc. bases its claim in this action on said assignment of funds,
which occurred on May 6, 1963, prior to the alleged effective dates of
any of the claims of other defendants in this action. Oliver De Silva,
Inc. contends that its affidavits show that the assignment by Lee was
valid and prior in time to any of the claimed liens on the interpleded
fund. Therefore, it is submitted that as a matter of law Oliver De Silva
is entitled to partial summary judgment for the entire amount of its
Issue of Fact]
It is the
finding of this court that with respect to Oliver De Silva's motion for
summary judgment there remains a genuine issue of fact and that,
therefore, the motion must be denied. In its amended complaint J. W. Lee
& Co. alleged in its second cause of action that Latipac was
indebted to Lee in the sum of $735,306.24 "on an account for work,
labor, materials and equipment supplied for defendants at their special
instance and request in the improvements upon the premises herein
described." The "premises" of defendant upon which
plaintiff had worked included lands within the boundary of Peacock
Lagoon Unit No. 1; lands within the boundary of Marin Bay Unit No. 2a;
and lands within the boundary of Peacock Lagoon Unit No. 2.
recovered $150,000.00 on its second cause of action. The problem,
however, is that the judgment was for work performed on all three
premises of the defendant mentioned above, while the assignment by J. W.
Lee to Oliver De Silva was only with regard to money owned by Latipac to
J. W. Lee for services performed on Peacock Lagoon No. 2. De Silva's
affidavits do not establish what portion of the $150,000.00 judgment is
attributable to the work done on Peacock Lagoon No. 2.
is the finding of this court that there is a genuine issue of fact which
must be resolved at trial and it is, accordingly, the order of this
court that defendant Oliver De Silva, Inc's motion for summary judgment
be, and it hereby is, denied. In light of the above disposition of the
motion, it is unnecessary for this court to determine at this time the
validity and priority of the rights of Oliver De Silva, Inc. by reason
of the assignment.
for Partial Summary Judgment in Favor of General Tire & Rubber Co.
and Braddock, Logan & Valley Co.
Tire & Rubber Co. and Braddock, Logan & Valley Co. base their
claims on liens obtained on the cause of action of J. W. Lee & Co.
against Latipac, Inc., pursuant to §688.1 of the California Code of
Civil Procedure. In support of their motions they contend that competing
liens under §688.1 should be satisfied on a first-in-time,
first-in-right basis. Parties who oppose these motions for summary
judgment contend that competing liens under §688.1 should be paid on a
pro rata basis.
It is the
finding of this court that this substantive issue need not be decided at
this point in that even if this court accepts the construction of §688.1
as posited by the moving parties, there are still genuine issues of fact
and Braddock submit that when §688.1 is read together with §2897 of
the California Civil Code, it is clear that each lien claimant in this
action, proceeding under §688.1, has prority in accordance with the
date of the order granting such lien. In pertinent part, §2897
things being equal, different liens upon the same property have
priority according to the time of their creation . . .." (Emphasis
In applying §2897,
the court is to consider the time of each lien's creation only after
determining that in all other respects the liens are equal. Whether
liens are equal in other respects is an equitable determination which
this court feels should not generally be resolved on a motion for
is the order of this court that the priority of liens granted pursuant
to §688.1 will be determined after a trial. Accordingly, motions for
partial summary judgment in behalf of General Tire and Rubber Co. and
Braddock, Logan & Valley Co., are denied.
In its answer, Collection Service, Inc. claims the sum of $15,239.46 by
virtue of its Abstract recorded with the
on July 7, 1967.
¶9233]John T. Dalton and Dorothea C. Dalton, a marital community under
the laws of the State of Washington, Plaintiff v. United States of
S. District Court, West.
, No. Div., Civil No. 7117, 2/17/69
[Code Secs. 6321 and 6331]
Tax liens: Levy and distraint: Community property: Washington:
Husband's salary: Irreparable damage.--Even though the separation of
husband and wife for more than two years is grounds for divorce under
Washington law, such, in the absence of the commencement of divorce
proceedings, or entry into a property settlement, or other evidences
indicating an intention of the parties to permanently and legally
terminate the marriage relationship, does not operate to dissolve the
marriage relationship. Therefore, the earnings of the taxpayer-husband
were marital community property. The Government's tax lien based upon an
unpaid tax obligation of the taxpayer-husband did not attach to his
interest in the community property. The taxpayer's wife and children had
an economic interest in the taxpayer's earnings and the enforcement of a
levy against such salary would cause them to suffer irreparable damage.
McAteer, 1115 Norton Bldg.,
, for plaintiff. Eugene G. Cushing, United States Attorney, Albert E.
Stephan, Assistant United States Attorney, 1012 U. S. Courthouse,
Seattle, Wash., for defendant.
of Fact and Conclusions of Law
This case was
regularly tried before the above-entitled Court on
January 15, 1969
. In addition to the admitted facts established by pre-trial Orders
entered herein on
October 18, 1968
, and on
January 14, 1969
, the Court, after hearing testimony (including testimony taken by
deposition of John T. Dalton), admitting exhibits into evidence, and
being fully advised, now makes the following:
I. During the
calendar year 1963, John T. Dalton expended the sum of $840.18 directly
and indirectly for the partial support of the children of John T. Dalton
and Dorothea C. Dalton and for the partial support of Dorothea C.
II. During the
calendar year 1964, John T. Dalton expended the sum of $1,228.05
directly and indirectly for the partial support of the children of John
T. Dalton and Dorothea C. Dalton and for the partial support of Dorothea
the calendar year 1965, John T. Dalton expended the sum of $2,685.50
directly and indirectly for the partial support of the children of John
T. Dalton and Dorothea C. Dalton and for the partial support of Dorothea
IV. During the
calendar year 1966, John T. Dalton expended the sum of $3,779.57
directly and indirectly for the partial support of the children of John
T. Dalton and Dorothea C. Dalton and for the partial support of Dorothea
V. During the
calendar year 1967, John T. Dalton expended the sum of $4,851.41
directly and indirectly for the partial support of the children of John
T. Dalton and Dorothea C. Dalton and for the partial support of Dorothea
VI. During the
calendar year 1968, John T. Dalton expended the sum of $5,243.66
directly and indirectly for the partial support of the children of John
T. Dalton and Dorothea C. Dalton and for the partial support of Dorothea
VII. John T.
Dalton and Dorothea C. Dalton regularly consult together as to the
financial requirements for the maintenance of the home in which Dorothea
C. Dalton and the children of John T. Dalton and Dorothea C. Dalton
reside and the medical and educational expenses of the children.
John T. Dalton nor Dorothea C. Dalton sought to legally terminate the
marriage relationship by divorce proceedings. John T. Dalton and
Dorothea C. Dalton have not entered into a property settlement
marriage of John T. Dalton and Doroteha C. Dalton was not dissolved in
1959 or at any point in time thereafter.
children of John T. Dalton and Dorothea C. Dalton, and Dorothea C.
Dalton have an economic interest in the earnings of John T. Dalton.
children of John T. Dalton and Dorothea C. Dalton, and Dorothea C.
Dalton would suffer irreparable injury if the defendant is permitted to
levy on those wages and earnings of John T. Dalton which is the subject
of this civil action.
foregoing Findings of Fact, the Court now enters the following:
constitutes a marital community under the law of the State of
and this Court has jurisdiction under the statutory authority of 28 U.
S. C. 1346(e) and 26
plaintiff marital community would suffer irreparable injury if
enforcement of the levy made on Pioneer Industries, Inc. on the salary
of John T. Dalton is not enjoined.
as Community Property]
earnings of John T. Dalton during the years 1963, 1964, 1965, 1966, 1967
and 1968, constitute community property under the law of the State of
Not Subject to Levy]
interest of the taxpayer John T. Dalton in his salary paid by Pioneer
Industries, Inc., may not be levied upon for collection of income tax
assessed against the separate taxpayer John T. Dalton even if the
identical plaintiff marital community existed both at the time the
separate tax liability was incurred and at the time of the levy.
Community Not Dissolved]
physical separation of husband and wife for more than two years which
would constitute grounds for divorce under the law of the State of
Washington (RCW 26.08.020(9)) in the absence of commencement of divorce
proceedings, or entry into an agreement of property settlement between
spouses, or other evidence indicating an intention of the parties to
permanently and legally terminate the marriage relationship does not
operate to dissolve the marriage relationship under the law of the State
of Washington, nor for purposes of collection of internal revenue taxes.
marital community of John T. Dalton and Dorothea C. Dalton was not
dissolved in 1959 or at any point in time thereafter.
marital community of John T. Dalton and Dorothea C. Dalton has an
economic interest in the earnings of John T. Dalton.
earnings of John T. Dalton constitute marital community property under
the law of the State of
marriage of John T. Dalton was emotionally defunct from and after John
T. Dalton's release from prison when he did not return to live in the
family home, nevertheless the marriage continued for all other legal
¶9558]United States of America, Plaintiff v. Ignazio Melchiorre,
formerly t/a Italian-American Grocery Company, et al., Defendants.
S. District Court, East. Dist. Va., Norfolk Div., Civil Action No. 5431,
292 FSupp 305, 8/16/68
[R. S. §3466]
Lien for taxes: Insolvency proceeding: Priority: Landlord's lien:
Virginia.--In an insolvency proceeding under R. S. §3466, a U. S.
tax lien was entitled to priority over a Virginia landlord's lien where
the tax liability was assessed on June 20, 1963 and the landlords
obtained a distress warrant on June 21, 1963. The landlord's lien was
not specific and perfected on the date of the voluntary assignment by
the delinquent tenant for the benefit of creditors since the amount of
the lien had not been established. Waddill, Holland & Flinn,
) 45-1 USTC ¶9126, 323
Spratley, Jr., United States Attorney,
P. O. Box 60
, for plaintiff. Russo, White and Katherman, Plaza One, Norfolk, Va.,
for I. Melchiorre and N. Hecht; Maurice Steingold, Town Point Bldg.,
Norfolk, Va., for Char-Ben Corp.; Fine, Fine, Legum, Schwan and Fine,
Law Bldg., Norfolk, Va., for Lomin Co., Inc.; Melvin J. Radin, Rotunda
Bldg., Norfolk, Va.; for E. Elson; for defendants.
landlords, Lomin Company, Inc., Char-Ben Corp., and Ester Elson, are
competing for the fund presently in the possession of the defendant,
Norman Hecht, Trustee, alleging that their claim to this fund is senior
and prior to that of the federal tax liens asserted here by the
Government. In response to requests for admissions filed and served in
this case, defendants have admitted the following:
That the defendant, Ignazio Melchiorre, t/a Italian-American Grocery
Company, was a tenant of the aforesaid defendants by virtue of a written
lease calling for the payment of rent in the sum of $200.00 per month.
That the defendant taxpayer, Ignazio Melchiorre, defaulted in the
payment of his rent, and the defendant landlords obtained a warrant of
June 21, 1963
. The warrant of distress was in the sum of $600.00 covering rent at the
rate of $200.00 per month for the months of April, May and June of 1963,
and it was issued by a justice of the peace.
That the defendant, Ignazio Melchiorre, made an assignment for the
benefit of his creditors on August 8, 1963.
That as a result of this assignment and the sale of Ignazio Melchiorre's
stock in trade and fixtures by the defendant, Norman Hecht, Trustee, the
said trustee is holding the sum of $1,093.48, subject to certain
Director of Internal Revenue made an assessment on June 20, 1963 against
the defendant, Ignazio Melchiorre, t/a Italian-American Grocery Co., for
withholding taxes, penalties and interest for the four quarters of 1962
in the sum of $3,319.52, and for the first quarter of 1963 in the sum of
$812.00. The assessment was based on the filing of no payment returns by
the defendant taxpayer. On June 21, 1963 notice of this assessment was
given to the taxpayer and demand was made for payment. There is still
due and owing to the United States by Ignazio Melchiorre by virtue of
the aforesaid assessment the sum of $3,909.91, plus statutory interest.
A notice of federal tax lien covering the aforesaid assessment was filed
with the Clerk of the
, on June 24, 1963. On July 5, 1963 and August 2, 1963 the District
Director made assessments against Ignazio Melchiorre in the respective
sums of $179.21 and $319.25, and duly gave the taxpayer notice of the
assessments making demands for payment. These sums, plus statutory
interest, thereon, are still due and owing the
United States of America
, moves this Court for summary judgment pursuant to Rule 56, Federal
Rules of Civil Procedure. The issue before the Court is whether or not
§3466 of the Revised Statutes, 31 U. S. C. 191, gives priority to a tax
lien of the United States over a landlord's lien as a matter of law
where the District Director of Internal Revenue made the assessment on
June 20, 1963, and the defendant landlords obtained a warrant of
distress on June 21, 1963. An affidavit as to the insolvency of the
taxpayer on August 8, 1963 has been filed and is not controverted.
This issue is
substantially the same as that in United States v. Waddill, Holland
& Flinn, Inc. (1945), [45-1 USTC ¶9126] 323 U. S. 353, 65 S.
Ct. 304, 89 L. Ed. 294 (28 S. E. 2d 741, 182 Va. 351). In this case Mrs.
Oeland Roman operated a restaurant in
, on premises leased from defendant landlords Waddill, Holland &
Flinn, Inc. On June 19, 1941, she executed a general deed of assignment
to a trustee for the benefit of creditors specifically conveying all
personal property, fixtures and equipment used by her in the conduct of
the restaurant and located on the premises. The property remained on the
premises until sold by the trustee on July 12, 1941. After deduction of
istrative expenses, a sum of $1,407.29 remained. Four creditors claimed
priority of payment from the fund, two of which are not relevant to the
issue under consideration.
claimed the sum of $1,559.63, plus interest, representing certain unpaid
federal unemployment compensation taxes and a debt arising out of a
Federal Housing Administration transaction.
Unemployment Compensation Commission made a tax claim which was conceded
to be subordinate to 1 above and hence not considered.
The City of
claimed $300.55 as personal property taxes still unpaid. On July 2,
1941, the city distrained on all of the property on the leased premises.
The defendant landlord Waddill, Holland & Flinn, Inc. claimed
$1,500.00 for six months' rent due and to become due. On July 1, 1941,
twelve days after the deed of assignment was executed, the defendant
landlords obtained a distress warrant for 32/5 months' past due rent and
an attachment for 23/5 months' future installments of rent. On the same
day the firm levied the warrant and attachment on the assignor's
property located on the leased premises.
under the deed of assignment filed a petition in the Corporation Court
of Danville, reciting the various claims and requesting advice as to the
proper distribution. That court held that the landlord was entitled to
priority in payment over the claims of the
and the Virginia Unemployment Compensation Commission, but that its
claim was subordinate to that of the City of
. On appeal by the
, the Supreme Court of Appeals of
affirmed this order of distribution. On certiorari the Supreme Court
reversed the holding of the lower court.
delivered the opinion of the court:
3466 of the Revised Statutes provides in pertinent part that 'the debts
due to the
shall be first satisfied' whenever any person indebted to the
is insolvent or, 'not having sufficient property to pay all his debts,
makes a voluntary assignment thereof.' We hold that this statute clearly
subordinates the claims of both the landlord and the municipality to
that of the
. The judgment of the court below must accordingly be reversed.
words of §3466 are broad and sweeping and, on their face, admit of no
exception to the priority of claims of the
. Thelusson v. Smith, 2. Wheat, 396, 425; United States v.
Texas, [[42-1 USTC ¶9162] 314
480, 484]. But this court in the past has recognized that certain
exceptions could be read into this statute. The question has not been
expressly decided, however, as to whether the priority of the
might be defeated by a specific and perfected lien upon the property at
the time of the insolvency or voluntary assignment. Conard v.
Atlantic Insurance Co., 1 Pet. 386, 441, 444; Spokane County v.
United States [1 USTC ¶387], 279 U. S. 80, 95; United States v.
Knott, 398 U. S. 544, 551; New York v. Maclay [[3 USTC ¶1044]
288 U. S. 290, 293, 294]; United States v. Texas, [[42-1 USTC ¶9162]
314 U. S. 480, 484, 486]. It is within this suggested exception that the
landlord and the municipality seek to bring themselves. Once again,
however, we do not reach a decision as to whether such an exception is
permissible for we do not believe that the asserted liens of the
landlord and the municipality were sufficiently specific and perfected
on the date of the voluntary assignment to cast any serious doubt on the
priority of the claim of the
landlord rests its claim upon certain provisions of the Virginia Code of
1936. Sections 5519 1
and 5523 2
authorize a landlord to levy distress for six months' 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 5524 3
provides that the goods of the tenant on leased premises in a city or
town may not be removed by a lienor or purchaser, nor taken under legal
process, save 'on the terms of paying to the person entitled to the rent
so much as in arrear, and securing to him so much as is to become due,'
not to exceed six months' rent. Other sections provide for officers
making the distress under warrant from a justice, founded upon an
affidavit of the person claiming the rent, and for such officers to make
returns of their actions and proceedings upon such warrants. Provisions
are also made for legal proceedings looking toward the possession and
sale of the property to satisfy the debt.
Supreme Court of Appeals of Virginia has here held that these sections
'give the landlord a lien which is fixed and specific, and not one which
is merely inchoate, and that such a lien exists independently of the
right of distress or attachment, which are merely remedies for enforcing
at 363, 28 S. E. 2d at 746. It has also held that such a lien 'relates
back to the beginning of the tenancy,' 182
at 364, 28 S. E. 2d at 746, thus giving it force and effect on the date
of the voluntary assignment. These interpretations of the
statutes, as propositions of state law, are binding. But it 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
by an act of Congress. If the priority of the
is ever to be displaced by a local statutory lien, federal courts must
be free to examine the lien's actual legal effect upon the parties. A
state court's characterization of a lien as specific and perfected,
however conclusive as a matter of state law, cannot operate by itself to
impair or supersede a long-standing Congressional declaration of
priority. Field v.
, 9 Pet. 182, 201; United States v. Oklahoma, 261
, supra, 90.
by its legal effect under
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,
294. 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.
was clearly lacking as to the lien on
June 19, 1941
, the date of the assignment. On that day it was still uncertain whether
the landlord would ever assert and insist upon its statutory lien. Until
that was done it was impossible to determine the particular six months'
rent, or a proportion thereof, upon which the lien was based. The lien
did not relate to any particular six months' rent but could attach only
for the rent which might be due at or after the time when the lien was
asserted. Wades v. Figgatt, 75
575, 582. And if it were asserted at a time when the tenancy had
terminated or would terminate within six months of the date to which
rent had been fully paid, the lien could only cover less than six
months' rent. Conceivably the amount of rent due or to become due was
uncertain on the day of the assignment. The landlord may have been
mistaken as to the rental rate or as to payments previously made and the
tenant may have been entitled to a set-off. See Allen v. Hart, 18
] 722, 737; Hancock v. Whitehall Tobacco Co., 100
443, 447, 41 S. E. 860. Moreover, while the lien legally attached to all
such property as might be on the premises when the lien was asserted or
within thirty days prior to distraint, the landlord could distrain goods
only to the extent necessary to satisfy the rent justly believed to be
due, the tenant possessing an action for damages for excessive
distraint. Va. Code §5783 4;
Fishburne v. Engledove, 91 Va. 548, 22 S. E. 354; Gurfein v.
Howell, 142 Va. 197, 128 S. E. 644. Thus until the extent of the
lien was made known by the landlord and until some steps had been taken
to distrain or attach sufficient property to satisfy the lien, it was
impossible to specify the goods actually and properly subject to the
lien. Some of the goods on the premises may have been subject to
mortgages or liens which attached before the goods were brought on the
premises, in which case the landlord's lien would be inferior.
Code §5523. 5
And if other goods were removed after the date of the voluntary
assignment but more than thirty days before the distraint or attachment,
the right of distraint and attachment as to those goods would disappear.
Va. Code §5523 6;
Dime Deposit Bank v. Wescott, 113 Va. 567, 75 S. E. 179. These
factors compel the conclusion that neither the rent secured by the lien
nor the property subject to the lien was sufficiently specific and
ascertainable on the day of the voluntary assignment to fall within the
terms of the suggested exception.
was the statutory lien perfected as a matter of actual fact, regardless
of how complete it may have been as a matter of state law. The tenant
was divested of neither title nor possession by the silent existence of
the landlord's statutory lien on the date of the assignment. Only after
the lien was actually asserted and an attachment or a distraint leveled,
enabling the landlord to satisfy his claim out of the seized goods,
could it be argued that such goods severed themselves from the general
and free assets of the tenant from which the claims of the
were entitled to priority of payment. Prior to that time, the lien
operated to do no more than prevent the removal of goods from the
premises by certain classes of persons, Va. Code §5524 7,
and give the landlord priority in distribution under state law provided
that the goods remained on the premises. Such a potential, inchoate lien
could not disturb the clear command of §3466 of the Revised Statutes.
Something more than a 'caveat of a more perfect lien to come' was