Jones, Plaintiff v.
ert D. S. Mustard, Defendant.
United States of America
the Superior Court of the State of
, in and for
, No. 395. Civil Action, 1952, 109 A2d 789, December 1, 1954
[1939 Code Sec. 3672--similar to 1954 Code Sec. 6323]
Lien for taxes: Priority over landlord's lien for rents in arrears.--The
federal tax liens have priority over the landlord's lien for rents in
arrears where the tax liens had been filed before such rents became due
and the distraint upon the personal property of the lessee was made.
, for plaintiff. H. Newton White, Assistant United States District
, for Intervenor.
presented here is one of priority of liens upon a fund paid into Court
by the Sheriff of Sussex County. *
The fund in dispute resulted from a distraint for rent by the Sheriff
upon the personal property of the lessee of certain premises in
facts are stipulated. Jones, the owner of the property, leased it to
Plaza Corporation **
for a period of one year with the option of renewing for five additional
years. The option of renewal was exercised and as of July 20, 1949, ***
the rent due was $3,350.00. Under the terms of the lease, rent was
payable in advance. On
July 20, 1950
, the Sheriff of Sussex County, as bailiff for lessor, distrained on
lessee's personal property and on September 20 of the same year it was
sold. A net sum of $1,595.93 was realized from the sale to which the
lessor claims a preference.
liens were filed in the office of the Recorder of Deeds in and for
Lien No. Page Date filed Amount
248 ......... 137 8/20/48 957.00
249 ......... 138 8/20/48 1,506.88
401 ......... 163 6/10/49 840.68
402 ......... 164 6/10/49 236.42
Whichever of the two claimants is entitled to priority will obviously
receive the entire fund.
States takes the position that its liens for taxes have priority by
virtue of Sec. 3670, Title 26, U. S. C. which, insofar as pertinent
any person liable to pay any tax neglects or refuses to pay the same
after demand, the amount (including any interest, penalty, additional
amount, or addition to such tax, 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. 53 Stat. 448."
3672 goes on to provide that such lien shall not be valid as against
mortgagees, pledgees, purchasers, or judgment creditors, "* * *
until notice thereof has been filed by the collector * * *" in
accordance with the laws of the state where the property subject to the
lien is situated. It is agreed that the proper notice was given in this
case by the collector. The Government bases its claim to priority upon
the familiar principle that the first in time is the first in right.
v. City of
81; 74 Sup. Ct. 367 [54-1 USTC ¶9191].
claims priority as a result of the peculiar provisions of the Delaware
Statute of Distraint, Title 25, Del. Code, Sec. 6101, which reads:
goods and chattels of a tenant being upon premises held by him by demise
under a rent of money, are seized by virtue of any process of execution,
attachment, or sequestration, the goods and chattels shall be liable for
one year's rent of the premises, in arrear, or growing due, at the time
of the seizure, in preference to such process; accordingly the landlord
shall be paid such rent, not exceeding one year's rent, out of the
proceeds of the same of such goods and chattels, before anything shall
be applicable to such process."
It is apparent
not only from a reading of the section itself but from the
interpretation given it by our Courts that the lessor's preference
resulting from a distraint upon the personal property of his lessee is
carefully guarded. In this connection, former Chief Justice Layton in
Petition of Hoopes, 1 Terry 126, 5 A. (2d) 655, had occasion to review
the leading authorities on the subject and said this:
landlord's claim for rent growing due is * * * highly favored, and is
carefully guarded under the statutes and decisions.' In re Mitchell.
In McIntire v. Barkley, 5 Houst. 145, the Court said that the
words of the statute are general and comprehensive and without
qualification or exception; and in Hopkins v. Simpson, 3 Houst.
90, it was said that the landlord is amply provided with all the means
and remedies necessary to secure and preserve his preference 'as against
any and all execution creditors of his tenant in any event whatsoever'.
Ford v. Clewell, 9 Houst. 179, 31 A. 715, the ruling was that the
landlord's right to have the proceeds of the sale of the personal
property of his tenant applied to the rent is superior to the lien of a
chattel mortgage which was given before the beginning of the tenancy and
before the goods were moved on to the demised premises, a chattel
mortgage not being an execution process.
the statute both literally and in the light of its manifest purpose as
judicially declared, there is small reason to suppose that the
Legislature meant that the preference of one year's rent growing due
came into existence on the day of the levy or seizure and, therefore, is
limited to rent growing due during the year ensuing.
it is well settled that the claim grows out of the lease and attaches at
the beginning of the tenancy. It does not depend on the levy or seizure,
but exists independently of the institution of any proceeding for its
enforcement. 16 R. C. L. 988.
preferential claim, therefore, has its origin in the lease. It is
perfected by the seizure. Rent accrues from day to day. The payment of a
periodical installment discharges the rent for that period, but rent
continues to grow due, and there is never a moment of time during the
term when it can be said that rent is not growing due. It was not the
purpose of the statute to mark the day of the seizure as the initial
date of a preference year, and to limit the preference to the rent
growing due during that year. What the statute does declare is, that in
the proceeds of the sale of those goods which stood as security for
rent, the landlord shall have a preference to the extent of one year's
rent growing due, if at the time of the seizure a tenancy was in
existence by virtue of which rent was growing due."
case, then, rests on the proposition that his preference attaches at the
beginning of the tenancy (in this case, the year 1945) and consequently,
outranks the federal liens, the earliest of which came into being in
concerns any lien or preference created by statute of this State, this
argument is undoubtedly sound. But as Justice Minton said in
as to any funds in excess of the amount necessary to pay the mortgage
and judgment creditors, Congress intended to assert the federal lien.
There is nothing in the language of Sec. 3872 to show that Congress
intended antecedent federal tax liens to rank behind any but the
specific categories of interests set out therein * * *." 1
What lien or
preference has this lessor which is said to be antecedent to the federal
liens in this case? It is, he asserts, the preference to one year's rent
given by Title 25, Del. Code, Sec. 6101. But conceding the superiority
of this preference over any type of lien or claim granted by any statute
of this State, is it among the types of liens specified in 26 U. S. C.,
Sec. 3672? The answer must be in the negative. Lessor, here, is neither
a mortgagee, purchaser, pledgee or judgment creditor. Then what is he?
As I see it, he is the holder of what may be characterized as an
inchoate lien, that is, the type of lien where the certainty of amount,
exact identity of the lienor and time of attachment must await future
determination. Whether or not such an inchoate lien will outrank those
preferences enumerated in Sec. 3672 must depend upon the views, not of
the State, but the federal Courts.
States v. Security Trust and Savings Bank, 340 U. S. 47, 71 S. Ct.
111 [52-2 USTC ¶9492], the holder of an inchoate attachment lien 2
antedating a federal tax lien claimed a priority on the distribution of
a fund. The Supreme Court held that such inchoate liens might only
become certain as to amount and identity of the lienor at some date
subsequent to the date of the federal liens and could not be permitted
to displace them.
The Court went
on to say:
can the doctrine of relation back--which by process of judicial
reasoning merges the attachment lien in the judgment and relates the
judgment lien back to the date of the attachment--operate to destroy the
realities of the situation."
of Justice Jackson in his concurring opinion is apt.
history of this tax lien statute (Sec. 3670) indicates that only a
judgment creditor in the conventional sense is protected."
that the preference flowing from the Sheriff's distraint, superior
though it may be to all liens and claims established by statute of this
State, may not prevail in a contest with federal liens for taxes under
Sec. 3670 which were a validly recorded prior to the distraint. 3
An Order will
be entered in conformity with this opinion.
By Title 10, Sec. 2111, Del. Code, where several persons claim money
collected by a Sheriff, he may pay the money into Court to be
distributed by order of the Court.
Actually, Plaza was the assignee of the lease but this is immaterial.
July 20th was the day upon which the annual rental fell due.
Namely, mortgagee, pledgee, purchaser or judgment creditor.
"The lien of the attachment on real property attaches and becomes
effective upon a recording of a copy of the writ, together with a
description of the property attached, and a notice that it is attached *
* *. The attachment whether heretofore levied or hereafter levied shall
be a lien * * *." See 542a of the
Lessor does not in so many words claim a special precedence based upon
the argument that his lien is specific and the federal lien but general
in character. It would seem, however, that even if his argument were as
applicable to personal property as to real property that the views of
the Court in the
case supra (pages 84 and 85 of the Sup. Ct. Reports) would