Fact-Finding
Page6
On
September 13, 1960
, the Government served a notice of levy on Berns, demanding payment of
the debt owed the Highleys.
On
November 10, 1960
, the mortgaged property was sold to the mortgagees for $38,000, leaving
$30,873.71 unpaid on their judgment. The Government makes no claim to
this amount, since the mortgagees were judgment creditors prior to the
time the Government filed and recorded the tax lien. Cf. U. S. v.
Pioneer American Ins. Co. [63-2 USTC ¶9532], 374
U. S.
84 (1963).
The dispute
concerns the proceeds from the sale of dirt and gravel in the amount of
$3623.50. The district court entered judgment awarding these proceeds to
the mortgagees, less costs of the action and fees for plaintiffs'
attorney totaling $750.
Both parties
agree that Indiana law is controlling, Aquilino v. United States
[60-2 USTC ¶9538], 363 U. S. 509, 512-513 (1960); that under Indiana
law a mortgagee has no interest in rents and profits until he ousts the
mortgagor in possession; and that a mortgagor may not commit waste upon
the land. Knarr v. Conaway, et al., 42 Ind. 260, 265 (1873).
[Rents
and Profits v. Waste]
The main issue
to be decided is whether the severance and sale of dirt and gravel,
without the knowledge or consent of the mortgagees, is a sale of part of
the realty which is security to the mortgagees and constitutes waste;
or, whether such dirt and gravel and the proceeds therefrom are rents
and profits which belong to the mortgagor in possession, thus subjecting
such proceeds to the Government's tax lien.
The
distinction between rents and profits and waste is generally said to be
that rents and profits pertain to annual income from the property, see
36A Words and Phrases, Rent and Profit, 694-695 (1962), while
waste is any act which does lasting damage to the freehold. See 44A
Words and Phrases, Waste, 663-669 (1962).
"Although
a mortgagor in possession is regarded for most purposes as the owner of
the land, and as such entitled to the temporary annual rents and
profits; yet, inasmuch as the very purpose of the mortgage would be
defeated by any acts affecting the permanent value of the property, no
point of law is better settled than that a court of equity will grant an
injunction to restrain waste by the mortgagor or those claiming under
him, when it is such as may render unsafe the debt secured by the
mortgage." (Italics added.) Knarr v. Conaway, et al., 42
Ind.
at 265.
The Government
contends that the district court erred in holding the removal of the
dirt and gravel constituted waste, since there was no proof that such
removal damaged or reduced the value of the land. The Government argues
that "the only acceptable evidence here would have been direct and
competent testimony, as to the value of the land before and after the
removal of the dirt fill."
This argument
fails to recognize that dirt and gravel are part of the corpus of the
land. Land "includes, not only the face of the earth, but
everything under it." 73 C. J. S. Property §7(b) at 163
(1951).
It appears
that in
Indiana
proof of reduction in value of the land is immaterial when a part of the
corpus of the land is being removed. In Sunnyside Coal & Coke Co.
v. Reitz, 14 Ind. App. 478, 39 N. E. 541 (1895), plaintiff sought
$10,000 from defendant for coal which defendant had allegedly dug and
removed from plaintiff's property. On petition for rehearing, 14 Ind.
App. 487, 43 N. E. 46 (1895), defendant argued that the trial court had
erred in sustaining an objection to evidence which would attempt to
establish `that the difference between the market value of the real
estate without any coal having been taken from it by the defendant, and
with the coal having been taken from it by the defendant, is not more
than $75.'" 14 Ind. App. at 488, 43 N. E. at 47. The court held
that excluding this evidence was not error and stated: "The coal as
it lay in place in the vein was a part of the realty; when it was
severed it became a chattel. The severance did not change its ownership.
The owner of the land was still the owner of the coal. When it was
carried away and converted, the owner was entitled to recover its value
as a chattel. For this injury the defendant must respond independently
of any question as to the injury or damages done to the land." 14
Ind. App. at 490, 43 N. E. at 48. See also, Richmond Natural Gas Co.
v. Davenport, 37
Ind.
App. 25, 76 N. E. 525 (1905).
The instant
case is to be distinguished from cases where a well, mine or quarry is opened
prior to the execution of a mortgage or commencement of a life
estate. In such cases, the taking of oil, gas and minerals by the person
in possession is not waste. Richmond Natural Gas Co. v. Davenport,
37 Ind. App. at 31, 76 N. E. at 527 (dictum); Andrews v. Andrews,
31
Ind.
App. 189, 67 N. E. 461 (1903).
We hold that
the sale of dirt and gravel by the mortgagor in possession was waste,
regardless of the provisions in the contracts for replacement of topsoil
and satisfactory drainage conditions. Potomac Dredging Co. v. Smoot,
108
Md.
54, 69 A. 507, 510 (1908); Fawn Lake Ranch Co. v. Cumbow, 102
Neb.
288, 167 N. W. 75, 76 (1918) (dictum); Cosgriff v. Dewey, 163 N.
Y. 1, 58 N. E. 1 (1900).
Finally, we
are presented with the issue of whether, assuming the sale of dirt and
gravel was waste, the mortgagees have the right to recover the proceeds
of such sale. We hold that under
Indiana
law and the law generally, mortgagees have this right. See Knarr v.
Conaway, et al., 42 Ind. 260, 265 (1873); Sunnyside Coal &
Coke Co. v. Reitz, 14
Ind.
App. 478, 39 N. E. 541 (1895); and 36 Am. Jur. Mortgages §§
363-367 (1941).
Since the
Government concedes that if we affirm the judgment below with respect to
the rights of the mortgagees in the interpleaded funds, it will
necessarily follow that the Government will have no objection to the
allowance of attorneys' fees to plaintiffs, we hold that the district
court did not err in making such allowance.
[Judgment
of Court]
The judgment
of the district court is affirmed.
AFFIRMED.
1
Also named as defendants were Herman H. Highley, Thelma G. Highley and
Charles A. Pratt, trustee in bankruptcy of the estate of Herman H.
Highley.
2
While the letter from the mortgagees to plaintiffs used the word
"topsoil," this suit is for the proceeds from the sale of dirt
and gravel.
[85-2 USTC
¶9629]In re Gary Krag McAllister & Paula Deana McAllister, d/b/a
Cherokee Park Medical Center, Ringgold I., f/d/b/a Cleveland Racketball
Club & Fitness Center, Debtors Gary Krag McAllister & Paula
Deana McAllister, Plaintiffs v. Cherokee Valley Federal Savings &
Loan Association Glen Marsh Byers, Chalmer Chastain, Jr., First
Tennessee Bank of Chattanooga, N. A., & The United States of America
for the use and benefit of the Internal Revenue Service, Defendant
U. S.
Bankruptcy Court, East. Dist. Tenn., No.
1-83-00529, 52 BR 293, 8/21/85
[Code Sec. 6323]
Lien for taxes: Property subject to: Priority: Tennessee.--
The debtor/taxpayer and two other defendants owned an office building as
partners, but the recorded deeds named them as grantees, which made them
tenants in common. The recorded deeds were sufficient to make the
building partnership property. A bank acquired a security interest in
the debtor's interest in the partnership, pursuant to an "option
and put" agreement as security for the debt. The security interest
was personal property. The bank also relied on the recordered memorandum
of leases as revealing that the debtor and the other two defendants
owned the building an partners. The bank perfected the security interest
by filing a financing statement with the Tennessee Secretary of State.
The IRS was held to knowledge that the recorded deeds were sufficient
under
Tennessee
law to make the building property of the debtor and the other defendants
as a partnership, and the memorandum of leases was record notice to the
IRS that the parties intended to own the building as partners. Thus, the
IRS could not rely on the recorded deeds as making the debtor a tenant
in common rather than a tenant in partnership, and the IRS did not
acquire a lien on the building itself as specific partnership property
to secure the debtor's personal debt for unpaid taxes. As a result, the
IRS did not have a lien on the building itself that would come ahead of
a previously perfected security interest in the debtor's interest in the
partnership, but the IRS did have a perfected tax lien on the debtor's
interest in the partnership. Although both the bank and the IRS each had
a perfected lien on the debtor's interest in the partnership, the bank's
lien had priority because it was perfected first. Furthermore, because
the bank's security interest was perfected first, the bank had the right
ahead of the IRS's tax lien to sell the debtor's interest to the other
two partners under the option and put agreement.
Thomas E. Ray,
Ray & North, 914 First Tennessee Bank Bldg., Chattanooga, Tenn.
37402, for plaintiffs.
Rob
ert W. Varnell, Jr., Elliott, Goodee & Varnell, 65 2nd St.,
Cleveland, Tenn., for Cherokee Valley Federal Savings Bank, Brian C.
Smith, Thomas, Mann & Gossett, 701 Market St., Chattanooga, Tenn.
37402-4855, for First Tennessee Bank, Betsy Burke, Department of
Justice, Washington, D. C. 20530, for IRS, James L. Golden, Leitner,
Warner, Moffitt, Williams & Dooley, Pioneer Bank Bldg., Chattanooga,
Tenn. 37402, for defendants Glen Byers and Chalmer Chastain, Jr.
Memorandum
KELLEY,
Bankruptcy Judge:
The remaining
dispute in this adversary proceeding is between First Tennessee Bank
(the Bank) and the Internal Revenue Service (the IRS).
The debtor,
Gary McAllister, and the defendants, Byers and Chastain, owned an office
building as partners, but the recorded deeds simply named them as
grantees, which would make them tenants in common. The Bank acquired a
security interest in McAllister's interest in the partnership, which was
personal property, and perfected the security interest by filing a
financing statement (UCC-1) with the Tennessee Secretary of State. The
IRS acquired tax liens against McAllister and filed notices in the
register's office. The IRS contends that even though McAllister, Byers,
and Chastain owned the property as partners, it could rely on the
recorded deeds showing them as tenants in common, and as a result, its
tax liens are perfected against the building itself and come ahead of
the Bank's security interest in McAllister's interest in the
partnership. The Bank contends that the IRS could not rely on the
recorded deeds as making McAllister a tenant in common because the real
estate records when the IRS filed its notices also contained a
memorandum of leases showing that McAllister, Byers, and Chastain owned
the building as partners.
The facts in
more detail are as follows.
McAllister
acquired an interest in the building when it was conveyed to him and
four other persons. They were partners, but the deed did not identify
them as partners. The deed was recorded.
Two of the
partners decided to withdraw. They conveyed their interest in the
property to McAllister and the other remaining partners, the defendants
Byers and Chastain. The quitclaim deed was recorded. It did not identify
McAllister, Byers, and Chastain as partners.
McAllister,
Byers, Chastain, and their wives executed a deed of trust of the
property to secure a debt to Cherokee Valley Federal Savings and Loan
Association. The deed of trust was recorded. The Bank and the IRS admit
that the lien of the deed of trust is superior to their liens.
McAllister,
Byers, and Chastain executed a new partnership agreement under which
their interests in the building were contributed to the partnership. The
new partnership was known as
Cherokee
Medical
Center
, apparently to distinguish it from the prior five member partnership
that was known as
Cherokee
Medical
Building
. They did not execute a deed of the property to the partnership.
The
partnership leased space to each of the partners. The leases were not
recorded, but a "Memorandum of Leases and Assignments Thereof"
was recorded.
The memorandum
identifies the lessor as a partnership composed of McAllister, Byers and
Chastain and known as
Cherokee
Medical
Center
. The leased premises are described as professional suites in
Cherokee
Medical
Center
, also known as
Cherokee
Medical
Building
. The memorandum then gives a legal description of the property where
the building is located. The memorandum states that the leases were
assigned to Cherokee Valley Federal Savings and Loan Association as
security for the debt secured by the recorded deed of trust.
The memorandum
itself was recorded and indexed in the name of the partnership and each
partner, including McAllister.
The quitclaim
deed from the withdrawing partners to McAllister, Byers, and Chastain,
the new partnership agreement, and the deed of trust to Cherokee Valley
Federal Savings and Loan Association, were executed within a period of a
few days in April, 1976. The quitclaim deed and the deed of trust were
recorded immediately.
The memorandum
of leases appears to have been executed in June, 1976 and recorded in
July, even though it is dated
April 21, 1976
.
In 1979 the
Bank made a business loan to McAllister as sole stockholder in Cleveland
Racketball Club, Inc. McAllister personally guaranteed the debt. As
security for the debt, McAllister, Byers, and Chastain executed for the
Bank's benefit an "option and put" agreement. The Bank filed a
financing statement (UCC-1) with the Tennessee Secretary of State
showing that it had a security interest in McAllister's partnership
interest in
Cherokee
Medical
Center
, a partnership composed of McAllister, Byers, and Chastain.
In 1981, and
again in 1982, the IRS assessed unpaid income taxes against the debtor.
It filed notices of tax liens in the register's office in January, 1983.
Discussion
The parties do
not seriously dispute that between Byers, McAllister, and Chastain the
building was partnership property. The court concludes that it was.
Since the
building was partnership property, McAllister by himself could not give
the Bank a lien on the building to secure his personal debt.
Tenn.
Code Ann. §61-1-124. He could deal with the building itself only for
partnership purposes.
Tenn.
Code Ann. §61-1-124. McAllister could, however, encumber his
"interest in the partnership" to secure his personal debt to
the Bank.
Tenn.
Code Ann. §§ 61-1-125 & 61-1-126. His interest in the partnership
was his right to share in the profits and surplus and was personal
property.
Tenn.
Code Ann. §61-1-125. The Bank argues that the option and put agreement
gave it a security interest in McAllister's interest in the partnership
and that it perfected the security interest by filing the financing
statement.
As a general
rule, the IRS could not have acquired a lien on the building itself to
secure McAllister's personal debt because the building was partnership
property.
Tenn.
Code Ann. §61-1-124. The IRS, however, argues that it could rely on the
recorded deeds as making McAllister a tenant in common, and so its lien
attached to the building itself as if McAllister were in fact a tenant
in common. Collner v. Greig, 137
Pa.
606, 20 A. 2d 938 (1890); 60 Am. Jur. 2d, Partnership §91 (1972). The
IRS's lien on the building itself would come ahead of the Bank's lien on
McAllister's interest in the partnership.
The IRS relies
on the
Tennessee
statute that provides that an unrecorded deed is ineffective as to a
creditor of the grantor or a bona fide purchaser from the grantor
without notice.
Tenn.
Code Ann. §66-26-103.
The argument
is out of place on the facts of this case. The recorded deeds were
sufficient to make the building partnership property between McAllister,
Byers, and Chastain.
Tenn.
Code Ann. §§ 61-1-107 & 61-1-109; Cultra v. Cultra, 188
Tenn.
506, 221 S. W. 2d 533 (1949); 60 Am. Jur. 2d Partnership §88 (1972). A
deed from them to the partnership or to themselves as partners was not
required to make the building partnership property. Apparently there was
no such deed. The Bank is not relying on an unrecorded deed to the
partnership. It is relying on the recorded memorandum of leases as
revealing that McAllister, Byers, and Chastain owned the building as
partners.
The IRS could
argue that the memorandum of leases would only give notice of an
unrecorded deed to the partnership, but this argument must also be
rejected for the reasons already given.
The IRS must
be held to knowledge that the recorded deeds were sufficient under
Tennessee
law to make the building property of McAllister, Byers, and Chastain as
a partnership.
The memorandum
of leases was record notice to the IRS that McAllister, Byers, and
Chastain intended to own the building as partners. The memorandum of
leases cannot be read any other way. Tenn. Code Ann. §66-26-102; Phoenix
Mutual Life Ins. Co. v. Kingston Bank & Trust Co., 172 Tenn.
335, 112 S. W. 2d 381 (1938); see also Groves v. Witherspoon, 399
F. Supp. 456 (E. D. Tenn. 1975). The IRS could not rely on the recorded
deeds as making McAllister a tenant in common rather than a tenant in
partnership. Thus, the IRS did not acquire a lien on the building itself
as specific partnership property to secure McAllister's personal debt
for unpaid taxes.
Tenn.
Code Ann. §61-1-124(b)(3).
The result is
that the IRS does not have a lien on the building itself that would come
ahead of a previously perfected security interest in McAllister's
interest in the partnership.
The IRS does
have a tax lien on McAllister's interest in the partnership. It was
perfected when the lien notices were filed.
Tenn.
Code Ann. §§ 61-1-127 & 66-21-201; Howard v.
United States
, 566 S. W. 2d 521 (
Tenn.
1978); 35 Am. Jur. 2d, Federal Tax Enforcement §§ 8 & 10 (1967).
Thus, it appears that the Bank and the IRS each has a perfected lien on
McAllister's interest in the partnership and that the Bank's lien has
priority because perfected first. There is a problem with the priority
conclusion because of the odd nature of the Bank's rights under the
option and put agreement. The agreement created a security interest
within the Uniform Commercial Code's definition of security interest.
Tenn.
Code Ann. §47-1-201(37). But it did not give the Bank the right to
dispose of McAllister's interest in the partnership by foreclosure under
Article 9 of the Uniform Commercial Code.
Tenn.
Code Ann. §47-9-501 et seq. It also was not a general assignment of
McAllister's interest in the partnership.
Tenn.
Code Ann. §61-1-126. The Bank's security interest apparently gave it
only the right to sell McAllister's interest in the partnership to Byers
or Chastain, without specifically giving it the right to share in the
surplus or profits of the partnership other than by selling the
partnership interest. Nevertheless, the bank took the correct steps to
perfect its security interest.
Tenn.
Code Ann. §§ 47-9-106 & 47-9-301. And the Bank's security interest
having been perfected first gives it the right ahead of the IRS's tax
lien to sell McAllister's interest to Byers or Chastain under the option
and put agreement.
This
memorandum constitutes findings of fact and conclusions of law.
Bankruptcy Rule 7052.
Order
In accordance
with the court's memorandum opinion of this date, it is ordered that the
right of the defendant, First Tennessee Bank, to sell Gary Krag
McAllister's interest in the partnership known as Cherokee Medical
Center to the defendants, Glen M. Byers and Chalmer Chastain, Jr., is a
security interest with priority over and enforceable ahead of the tax
liens of the United States of America acquired through the actions of
the Internal Revenue Service.
It is further
ordered that the remaining issues in this proceeding will be heard and
decided on motion of an interested party.
[77-2 USTC
¶9759]
United States of America
, Plaintiff v. Leonard M. and Alene Conry, Defendants
U.
S. District Court, No.
Dist.
Calif.
, No. C-75-2777 SC, No. C-77-0450 SC, 9/27/77
[Code Sec. 6335]
Collection of taxes: Sale of seized property.--Upon the
taxpayers' failure to present evidence disputing the Commissioner's
determination, the District Court upheld deficiencies, interest and
penalties as assessed against the taxpayers for failure to pay income,
FICA, and FUTA taxes. The Court thereupon assigned the order of priority
to be given to the government's tax liens and to claims by third
parties, and ordered a parcel of the taxpayers' real property to be sold
to satisfy the tax liens.
James L.
Browning, United States Attorney, Richard J. Sideman, Assistant United
States Attorney, Tax Division, 450 Golden Gate Ave., San Francisco,
Calif. 94102 for plaintiff. Richard Daly, 100 Wilshire Blvd., Santa
Monica, Calif. 90401 for defendants Leonard M. Conry, Edward P.
Traverse, and Alene Conry and Timothy Laddish, Deputy Attorney General,
6000 State Bldg., San Francisco, Calif. 94102. Dennis M. Talbott, 1
Embarcadero Center,
San Francisco
,
Calif.
94111
for Crocker National Bank. Charles P. Selden, Deputy County Counsel,
Humboldt County Courthouse,
Eureka
,
Calif.
95501 for
Humboldt
County
Tax Collector.
Rob
ert A. Padway, George M. Duff and Theodore Sachman, 555 California St.,
San Francisco, Calif. 94137 for Bank of America National Trust and
Savings Association and Continental Auxiliary Co.
Findings
of Fact and Conclusions of Law Findings of Fact
CONTI,
District Judge:
1. This is a
civil action for the collection of federal income taxes, F. I. C. A.,
and F. U. T. A. taxes. Actions numbers C-75-2777 and C-77-0450 were
consolidated for trial.
2. The years
and quarterly periods at issue are 1956, 1958, 1970, 1971, 1972, 1973,
1974 and 1975, and the quarterly periods ending on September 30, 1974,
December 31, 1974, and March 31, 1975.
3. The
defendant, Leonard Conry, was assessed income tax liabilities for 1956
and 1958 on
August 23, 1963
, in the following amounts: (Government Exhibit No. 1)
Assessed
Year Taxes Interest Penalties
1956 .... $8,013.64 $3,055.72 [TEH] * $496.62
1958 .... 6,401.80 1,692.89 320.09
* Penalties for negligence and failure to pay estimated income taxes.
4. As of
August 22, 1977
, Leonard Conry's assessed income tax liabilities for 1956 and 1958,
after recognizing all payments, credits, and abatements, is as follows:
1956 .... $18,647.65
1958 .... $12,901.92
Statutory interest continues to run on the aforementioned liabilities.
(Witness: Michael Ecsi)
5. The
defendants, Leonard and Alene Conry, were assessed income tax
liabilities for the years 1970 through 1974 as follows:
Assessment Assessed Penalties
Year Date Tax Interest [TEH] *
1970 ....
5/28/71
$3,057.73 $21.82 $141.15
1971 ....
4/20/72
1,929.45 .95 71.25
1972 ....
5/10/73
3,926.59 15.49
1973 ....
9/23/74
5,766.00 34.91 35.32
1974 ....
5/26/75
5,229.00 34.92 223.29
* Penalties for filing and collection fees, failure to pay estimated
income tax penalties and failure to pay income tax penalties. (See
Government Exhibit No. 2)
6. As of
August 22, 1977
, Leonard and Alene Conry's assessed income tax liabilities for 1970
through 1974, after recognizing all payments, credits, and abatements,
was as follows:
Year Total Liabilities
1970 .... $3,119.44
1971 .... 3,182.04
1972 .... 1,423.36
1973 .... 35.23
1974 .... 1,603.28
Statutory interest (7% per year) continues to run on the aforementioned
liabilities.
7. The
defendant, Leonard Conry, was assessed a liability for withheld federal
F. I. C. A. and F. U. T. A. taxes as follows:
Quarterly Period Ending-- Assessment Penalty Assessed
and Type of Tax Date Tax [TEH] * Interest
9/30/74
--F. I. C. A. .........
1/13/75
$534.25 $81.16 $6.59
12/31/74
--F. I. C. A. ........
3/10/75
548.02 29.75 3.37
3/1/75
--F. I. C. A. ..........
6/2/75
578.88 31.09 3.18
* Penalties for delinquent filings, failure to file depository receipts,
failure to pay, and filing and collection costs. (See Government Exhibit
No. 4)
8. As of
August 22, 1977
, Leonard Conry's assessed F. I. C. A. and F. U. T. A. withholding tax
liabilities, after recognizing all payments, credits, and abatements,
was as follows:
Quarterly Period Ending-- Total
and Type of Tax Liabilities
9/30/74
--F. I. C. A. ......... $146.78
12/31/74
--F. I. C. A. ........ 118.55
3/31/75
--F. I. C. A. ......... 107.57
Statutory interest continues to run on the aforementioned liabilities.
9. The
defendants, Leonard and Alene Conry, own a residence at
6751 Bret Barte Lane
,
Eureka
,
California
. Formerly, they lived at
3107 Trinity Street
,
Eureka
,
California
.
10. With
respect to the assessed liabilities that are described in paragraphs 3,
5, and 7 of these findings of fact, the Internal Revenue Service filed
Notices of Federal Tax Liens against the residence of the defendants in
Eureka, California, with the County Recorder of Humboldt County, State
of California, as follows:
Period Date of Date of Date of
Involved Filing Discharge Refiling
1/16/65
(due to sale
of old residence on
Trinity
Street and
purchase
of new
home on
Bret Harte
1956 ...........
1/27/58
Lane)
10/31/67
10/18/63 5/19/69
9/21/75
1958 ........... 10/13/63 1/16/65 5/19/69
9/21/75
1970 ...........
10/07/71
1971 ...........
5/20/72
1972 ...........
6/04/73
QPE
9/30/74
(F. I. C. A.) ..
4/09/75
QPE
12/31/74
(F. U. T. A.) ..
4/09/75
QPE
12/31/74
(F. I. C. A.) ..
5/24/75
QPE
3/31/75
(F. I. C. A.) ..
6/19/75
1974 ...........
6/21/75
11. Among the
lien claimants against the defendants, Leonard and Alene Conry, is the
State of California, Franchise Tax Board, which filed a
"Certificate of Amounts of Tax, Interest, and Penalties Due"
with the County Recorder of Humboldt County, State of California, as
follows:
Date of
filing Amount Claimed
2/07/73
...................................... $ 794.52 plus interest
(This is junior to
U. S. A.
priority No. 3,
but
superior to priority No. 5--see Finding No. 15)
6/19/76
...................................... $1,920.38 plus interest
(This is junior to the
U. S. A.
claims)
12. The Bank
of
America
is the beneficiary of a deed of trust that was filed on
March 29, 1962
with the
County
Recorder
of
Humboldt County
,
California
. The deed of trust was against the real property owned by the
defendants. The outstanding principal secured by the deed is $12,678.29,
as of
August 19, 1977
.
13.
Furthermore, the real property is subject to a deed of trust in favor of
J. C. and Helen M. Jolliff. Said deed of trust, dated
January 14, 1963
was duly recorded on
January 18, 1963
, secures payment of a promissory note in the face amount of $3,927.09.
14. The
defendants, Leonard and Alene Conry, have offered no evidence to dispute
their liabilities for the federal income taxes, penalties, and interest,
that are set forth in these findings of fact.
15. The
priority of lien holders is as follows:
First
priority: Bank of
America
, NT&SA--1st Deed of Trust.
Second
priority: J. C. and Helen Jolliff--2nd Deed of Trust.
Third
priority:
U. S. A.
--for the sum of $37,851.05, plus interest and penalty thereon.
Fourth
priority: State of
California
--for the sum of $794.52, plus interest.
Fifth
priority:
U. S. A.
for balance of amount owing, to wit: $3,990.17, as of
Aug. 22, 1977
, plus interest and penalty thereon on amounts unpaid since
August 22, 1977
.
16. All
waivers executed by the parties, wherein the statute of limitations was
extended, were non-conditional--the defendant duly executed extensions
of the Statute of Limitations.
Conclusions
of Law
1. This court
has jurisdiction over the subject matter and the parties in this action.
26 U. S. C. §§ 7402 and 7403; 28 U. S. C. §§ 1340 and 1345.
2. The
complaint by the United States is duly authorized at the directive of a
delegate of the Attorney General of the United States upon the request
and authorization of a delegate of the Secretary of the Treasury of the
United States, in accordance with 26 U. S. C. §§ 7401 and 7403(a).
3. This is a
civil action for the collection of certain assessed and unpaid federal
tax liabilities of Leonard M. Conry, individually, and Leonard M. and
Alene Conry, jointly and severally and to enforce subsisting federal tax
liens against certain real property belonging to said defendants.
4. Set forth
in the Findings of Fact are schedules that recite the assessments of
liabilities and the filing of notices of liens by the Internal Revenue
Service. These assessments and filings were timely and duly authorized
as a matter of law, and are presumptively correct.
5. The
defendants, Leonard M. Conry and Alene Conry, bear the burden of
overcoming the presumptive correctness of the liabilities assessed by
the Internal Revenue Service.
6. The
defendants, Leonard M. Conry and Alene Conry, have failed to carry the
burden of proof described in paragraph 5 of these Conclusions of Law.
7. The
assessments described in the Findings of Fact created valid and
subsisting liens in favor of the
United States
upon all real, personal, tangible, untangible, legal, and equitable
property and interests belonging to the defendants, Leonard M. and Alene
Conry, including their rights to title and interest in the property
located at
6751 Bret Harte Lane
,
Eureka
,
California
. 26 U. S. C. §§ 6321 and 6322.
8. The filings
of notices of tax liens by the Internal Revenue Service perfected said
tax liens against all adverse parties claiming against the property
located at 6751 Bret Harte Lane, Eureka, California, and are prior in
time and prior in right to each and every interest claimed by all other
defendants joined herein, except to the extent that the
"Certificate of Amounts of Tax, Penalties and Interest" which
was filed by the State of California Franchise Tax Board preceded any
assessment by the Internal Revenue Service, 28 U. S. C. §§ 6321 and
6322, and except to the extent of a prior claim of the Bank of America
in the amount of $12,678.29 and a prior claim in favor of J. C. and
Helen M. Jolliff in the face amount of $3,927.09; that the other of
aforesaid priorities are as follows:
(1) Bank of
America
, NT&SA--1st Deed of Trust ($12,678.29 as of
August 19, 1977
);
(2) J. C. and
Helen M. Jolliff--2nd Deed of Trust;
(3)
U. S.
for the sum of $37,851.05;
(4) State of
California
for the sum of $794.52 plus interest;
(5)
United States
for the balance of amount of interest herein--$3,990.17 as of
August 22, 1977
, plus interest and penalties on amounts unpaid since
August 22, 1977
.
9. The federal
tax liabilities described herein have not been paid or satisfied, and
remain outstanding, due, and owing by the defendants, Leonard M. Conry
and Alene Conry, to the plaintiff.
10. A judgment
shall be prepared, declaring that the federal tax liabilities of the
defendants, Leonard M. Conry and Alene Conry, are to be satisfied by a
judicial sale of the residence located at
6751 Bret Harte Lane
,
Eureka
,
California
, to be conducted by the United States Marshal.
11. In
addition, the terms of the judgment shall be that the proceeds arising
from the sale of the property located at 6751 Bret Harte Lane, Eureka,
California, are to be distributed to the United States, except to the
extent that the filed claims by the State of California Franchise Tax
Board, precede in time the assessment dates of the defendants' federal
tax liabilities by the Internal Revenue Service, and the priorities
recited in paragraph 8.
12. Finally,
the judgment shall also order that when the proceeds arising from the
sale of the property located at 6751 Bret Harte Lane, Eureka,
California, have been distributed in accordance with these Findings of
Fact and Conclusions of Law, all claims and liens by the parties
claiming against such property shall be foreclosed forever against such
property.
Judgment,
Decree of Foreclosure, Seizure, and Order of
Sale
These
consolidated actions were tried before the Court, sitting without a
jury. On
August 29, 1977
, after a thorough examination of the evidence and upon consideration of
the credibility of the witnesses and the arguments of counsel, the Court
made its Findings of Fact and Conclusions of Law. Pursuant to its
Findings of Fact and Conclusions of Law, the Court, being fully advised
in the premises, HEREBY FINDS, DETERMINES, AND ADJUDGES as follows:
1. The
defendants, Leonard M. and Alene Conry, are truly and justly indebted to
the United States of America for income, Federal Insurance Contributions
Act, and Federal Unemployment Tax Act taxes, penalties and interest, for
the calendar years of 1956, 1958, 1970 through 1974, and the third and
fourth quarters of 1974 and the first quarter of 1975, in the total
amount of $41,841.22, plus additional amounts as prescribed by the
Internal Revenue Code.
THEREFORE, it
is ORDERED, ADJUDGED AND DECREED that the
United States of America
do have and recover a judgment against Leonard M. and Alene Conry for
the unpaid, assessed, liabilities in the amount of $41,841.22, plus
additional amounts as prescribed by the Internal Revenue Code.
2. Liens in
favor of the United States of America arising out of the unpaid federal
tax liability attach to all of the property and rights to property of
Leonard M. and Alene Conry, including a parcel of real property, and the
buildings thereon, located at 6751 Bret Harte Lane, Eureka, California.
THEREFORE, it
is ORDERED, ADJUDGED AND DECREED that the federal tax liens attaching to
the above-described realty be foreclosed.
3. The
above-described real property, together with the buildings thereon,
shall be seized by the United States Marshal and sold at public auction
in Humboldt County, California, pursuant to 28 U. S. C. §§ 2001 and
2002. The Marshal shall give public notice within Humboldt County,
California, of the time and place of the sale according to law, by
advertising a description of the property and the time and place of the
sale in a daily newspaper regularly issued and of general circulation in
Humboldt County, California, at least once each week for four
consecutive weeks preceding the date fixed for the sale; and by such
other notice within the Northern District of California as the United
States Marshal, in his discretion, shall deem appropriate; that no bid
(except as to the United States) shall be accepted unless such bid is
accompanied by a certified check or cash deposit of at least ten percent
(10%) of the amount of the bid; that the balance of the purchase price
shall be tendered to the Marshal by the successful bidder within thirty
(30) days following the date of sale in the form of a certified check or
cash; that in the event the successful bidder fails to fulfill this
requirement, his bid shall be in default and the deposit made by him
shall be forfeited and be retained by the Marshal as part of the
proceeds of sale, and the property shall again be noticed for sale in
the same manner as set forth above. The property shall be offered for
sale subject to confirmation by the Court; upon confirmation and receipt
of the balance of the purchaser at said price a quit claim deed to the
property sold.
The Marshal or
his deputy, on receiving the proceeds of said sale, shall forthwith
deposit them to the credit of this action in an account which the
Marshal maintains for such purposes, subject to the claims of the
parties set forth below; that thereafter, the Marshal shall first pay
from the proceeds of the sale the costs and expenses of the sale; that
the balance of the fund shall be distributed in accordance with the
following provisions of this Order:
FIRST: To the
defendants Bank of America National Trust and Savings Association and
Continental Auxiliary Company in satisfaction of the outstanding
balance, plus interest, due upon a mortgage given to Leonard M. and
Alene Conry, as secured by a deed of trust that was filed on March 29,
1962, with the County Recorder of Humboldt County, California, the sum
of $12,678.29;
SECOND: To the
defendants J. C. and Helen H. Jolliff, in the satisfaction of a loan
that is secured by a second deed of trust that was filed on January 18,
1963, with the County Recorder, Humboldt County, California, the sum of
$9,863.63, together with interest at the rate of $1.78 per day after
August 26, 1977;
THIRD: To the
United States of America in partial satisfaction of its outstanding lien
for unpaid federal taxes, the sum of $37,851.05, together with statutory
interest under 26 U. S. C. §6621 after August 22, 1977;
FOURTH: To the
State of California in partial satisfaction of the outstanding liens of
the California Franchise Tax Board, the sum of $1,147.87, together with
interest at the rate of $.26 per day after August 29, 1977;
FIFTH: To the
United States of America in partial or complete satisfaction of its
outstanding lien for unpaid federal taxes, the sum of $3,990.18,
together with statutory interest under 26 U. S. C. §6621, after August
22, 1977;
SIXTH: To the
State of California in partial or complete satisfaction of the
outstanding liens of the California Franchise Tax Board, the sum of
$1,944.37, together with interest at the rate of $.50 per day after
August 29, 1977.
IT IS FINALLY
ORDERED AND ADJUDGED that when the Marshal issues the quit claim deed to
the aforementioned property to a final purchaser pursuant to this
Judgment, all claims and liens by any party against such property shall
be foreclosed, dissolved and barred forever against such property.
[71-2 USTC
¶9654]In the Matter of the General Assignment for the Benefit of
Creditors of Holly Knitwear, Inc., a New Jersey Corporation, Assignor v.
Rob
ert S. Solomon, Assignee
Essex
County Court, Probate Div., Docket No. 8644-Z, 7-27/71
[Code Sec. 6323--Result unchanged by '69 Tax Reform Act]
Lien for taxes: Priority: Assignment to creditors: Federal tax lien:
Secured creditors and landlord's rent claim: State law.--A Federal
tax lien for unpaid withholding taxes did not have priority over a
purchase money security interest; a valid and existing secured lien on
assets arising out of a security agreement; or a landlord's lien for
rent which had been perfected before the date of an assignment for the
benefit of creditors. The Federal tax lien did have priority over a
landlord's state created lien. Under
New Jersey
distress law a debtor-tenant is granted a grace period of 10 days within
which he may commence an action to regain goods. Since the landlord's
distraint action occurred on
December 15, 1970
, and the assignment for the benefit of creditors took place on
December 16, 1970
, nine days remained before the lien reached fruition. Thus, the
landlord did not have, at the date of the assignment for the benefit of
creditors, a claim sufficient to defeat the Federal lien priority. Also,
the Federal tax lien had priority over: (1) unperfected wage claims; (2)
state's claim for personal property taxes; and (3) attorney fees.
Rob
ert S. Solomon, Kirsten, Solomon & Friedman,
744 Broad St.
,
Newark
, N. J., for the assignee. Arnold Samuels, Hein, Smith, Mooney &
Berezin, 25 E. Salem St., Hacken-sack, N. J., for claimant J. Logan.
Richard W. Hill, Assistant U. S. Attorney, 970 Broad St., Newark, N. J.,
for claimant District Director of Internal Revenue. Philip Kagan, State
House Annex, Trenton, N. J., for claimant State of New Jersey. Sidney
Reitman, Kapelsohn, Lerner, Leuchter, Reitman & Masiel, 24 Commerce
St., Newark, N. J., for wage claimants. Daniel Fox, Fox & Fox, 570
Broad St., Newark, N. J., for claimant Northern Financial Corp. Neil A.
Kleinberg, Kleinberg, Moroney, Masterson & Schachter, 1180 Raymond
Blvd., Newark, N. J., for claimant Textile Financial Corp.
Opinion
JOHNSON,
Judge:
On
December 16, 1970
the assignor corporation Holly Knitwear Inc. which was engaged in the
manufacture of knitted fabrics effected an assignment for the benefit of
creditors. Shortly thereafter, on
January 15, 1971
a public auction sale of the assets of the assignor corporation was
held, which sale was confirmed by order of the Probate Court of
February 8, 1971
. The amount realized pursuant to said sale, $73,395, was inclusive of
all machinery, equipment, and inventory held by the assignor with the
sole exception of an automobile for which the additional value of $2400
was received.
[Claimants]
Subsequently
this matter came before this court by means of a petition and order to
show cause entered on behalf of the assignee for instructions with
regard to a determination as to the priority of the various claims to
the funds resulting from the sale of the assets of the said assignor.
Involved herein, in addition to the assignee's request for
admin
istration expenses, are the following claimants:
(1)
United States of America
: The federal government has claimed taxes due to the Internal Revenue
Service in the amount of $40,601.34 for Social Security and Withholding
Taxes and for Federal Unemployment Insurance Contributions. However, the
proofs indicate that all of the claims arose subsequent to the filing of
these proceedings with the exception of claims for the tax quarter
ending
June 30, 1970
upon which an assessment was made on
November 27, 1970
in the amount of $3,868.29.
(2) Jonathon
Logan Inc. (hereinafter referred to as
Logan
): Its claim arising out of a purchase money security interest in two
sewing machines for which financing statements were filed on
June 10, 1970
is in the amount of $7500. In addition, attorneys' fees are sought.
(3) Northern
Financial Corp. and/or Northern Commercial Corp. (hereinafter referred
to as Northern): This claim of $8,939.32 is also predicated on a
purchase money security interest which was appropriately filed with the
Secretary of State of New Jersey on
April 7, 1969
. It too asks for reasonable attorneys' fees.
(4) Textile
Financial Corp. (hereinafter referred to as Textile): This party
contends it has a valid and existing secured lien on assets in an amount
equal to $23,870. This interest arose out of the security agreement
entered into between Textile and the assignor to secure a loan to the
assignor of $124,000. Said agreement was to serve as security for all
future advances made by the creditor and was also intended to provide
the creditor with a secured interest in all of the assignor's after
acquired property. Financing statements were filed
October 3, 1967
and
July 24, 1970
. Attorneys' fees are also asked.
(5) Feldwin
Realty Co.: This party asserts a landlord's lien of $13,991.04 for rents
due and for which it allegedly made a distraint on
December 15, 1970
.
(6) State of
New Jersey
: The State claims priority for taxes due and owing the Business
Personal Property Section in the amount of $4,652.04 in addition to some
$1,339.80 due and owing the Division of Employment Security.
(7) Employees
of the Assignor: These individuals seek sums totaling approximately
$22,000 as wages to which they were entitled at the time of the
assignment.
[Status
of Amounts Received by Assignee]
I. The intial
question to be determined in this matter is whether within the meaning
of N. J. S. A. 2A:19-43 "all sums received by said assignee"
constitutes value received for sale of collateral secured prior to the
date of the assignment by purchase money security interests as defined
in N. J. S. A. 12A:9-107 and by general security liens all of which were
filed and perfected in accordance with N. J. S. A. 12A:9-101 et seq.
Essentially,
the secured parties in question contend that their respective liens
should not be included in an accounting of the general assets of the
assignor's estate and hence should not be charged with any part of the
assignee's request for compensation or expenses incurred during the
admin
istration of said estate. The facts, which are virtually uncontroverted,
reveal that the parties holding these security interests agreed to a
sale of the collateral on which they held valid liens solely on the
understanding that if a profit resulted such would redound to the
benefit of the estate and that the secured parties would receive full
satisfaction to the extent of their outstanding claims. A profit was
realized and accordingly these parties in interest assert their reliance
on this agreement in advancing their contentions.
As authority,
Logan
and Northern have cited cases wherein the courts dealt with questions of
an assignees' status as a general lien creditor as defined in N. J. S.
A. 12A:9-301. However these references are inapposite for our purposes
here. Presently at bar is not the issue of whether the funds should
revert to the general assets of the estate but whether the assignee
should in fact be recompensed by the security creditors for his services
and expenses. It should be recognized that the assignee is not
attempting to assert his statutory role as lien creditor under N. J. S.
A. 2A:19-14 and 12A:9-301(3) in an effort to wrest from lesser claimants
asserts which by right should belong to the general estate. Rather, such
assets, as determined by the efficacy of the liens outstanding, have
already been conceded to these creditors in terms of their priority.
Thus the assignee's only claim here is for his efforts, costs and
expenses in distributing such assets. (See In re Pynn-Hawley Co.
63 N. J. Super 50 (County Court 1960); Assignment for the Benefit of
Creditors of Shay 75 N. J. Super 421 (App. Div. 1962); In re
Xaviers, Inc. 66 N. J. Super 561 (App. Div. 1961).
New Jersey
courts have long recognized and made mention of the fact that such
receivers, trustees and assignees are agents of the court and in this
capacity should be considered as working for the benefit of all
creditors who seek to reclaim from the insolvent's estate that which is
their just due. Sullivan v. James Leo Co. 124 N. J. Eq. 317
(E&A 1938); Seidler v. Branford Restaurant Co. 97 N. J. Eq.
153 (E&A 1925); Lerman v. Lincoln Novelty Co. 130 N. J. Eq.
144 (
Ch.
1941); Laudan v. ABC Travel
System
Ind.
64 N. J. Super 204 (
Ch.
1960).
It is true
that the above mentioned cases concern corporate receiverships wherein
the court itself took control of the insolvent enterprise. However, it
is now settled that the rationales behind the statutes dealing with
corporate receiverships, N. J. S. A. 14A:14-1 et seq. and assignments
for the benefit of creditors, N. J. S. A. 2A:19-1 et seq., are
identical. Therefore the receivership cases supply instructive precedent
for the assignment proceeding before this court. In re Xaviers, Inc.,
supra.
Next the
creditors rely on the case of Sliker v. Fisher 45 N. J. Eq. 132
(1889). Involved there were lands subject to mortgages which were
conveyed to an assignee who, with the consent of the mortgagees,
proceeded to sell such property free from any encumbrances. The proceeds
realized from the sale were then used to pay off the mortgages but since
the proceeds were less than the appraised value of the lands, the
assignee asked for an allowance out of the general assets of the estate
to make up the difference still due. In denying this request the court
held that the mortgagees' interest in the lands were not assigned and
hence the assignee had no power over them. The court refused to allow
the assignee to be recompensed at the expense of the general unsecured
creditors. If he was entitled to any compensation it would have had to
come from the mortgagees themselves on whose behalf he had acted as
agent.
It is argued
by the creditors that this decision stands squarely for their central
proposition, namely, that a valid security interest is superior and
paramount to the rights an assignee receives by virtue of a deed of
assignment. However, an appreciation of the limited intendment of that
decision, to protect the unsecured creditors, and a look at a more
recent case wherein Sliker was interpreted in what must be from
the creditors' viewpoint a much less fortuitous light, indicates clearly
that their position is not the decided state of the law. In re
Pynn-Hawley Co., supra, the court stated that the statutory language
"on all sums received" would lay to rest any further questions
raised on account of Sliker. The text of that opinion seems to
intimate that the assignee's commission could be predicated on any and
all sums dealt with in the
admin
istration of the estate regardless of their source.
Moreover, a
substantial line of cases has held that
admin
istration expenses must take priority over all other claims. These
general expenses of receivership may be paid out of the funds in a
receiver's hands before the payment of debts whether the latter be
secured or unsecured. Laudan v. ABS Travel System Inc., supra; Albert
and Kernahan v. Franklin Arms 107 N. J. Eq. 468 (E&A 1931); Pemberton
Lumber and Millwork Industries v. William G. Ridgeway Co. 38 N. J.
Super 383 (Ch. Div. 1955).
The Laudan
case concerned an agreement between a travel agency and airlines, hotels
and shipping lines wherein it was provided that the agency would hold
all funds collected by it for transportation costs in trust for the
carrier. In the subsequent proceeding by the receiver of the insolvent
agency for a pro rata apportionment of the
admin
istration expenses, the court dismissed the argument that trust funds
involved did not constitute "assets" chargeable to any part of
the receiver's compensation. The court stated succinctly that New Jersey
Courts have consistently afforded priority to the expenses of a
receivership over a mortgage or other lien where it was equitable to do
so and perceived "No valid reason why the same principle should not
apply to trust funds". At p. 207.
This court is
of the opinion that this policy is similarly dispositive of the matter sub
judice. Granted the lien holder here did not benefit financially by
consenting to a sale of the collateral to which they retained a right of
reclamation, but nowhere in this jurisdiction has it been held that
monetary benefit to a lien holder by a receivership is the sine qua
non for the priority of general
admin
istration expenses of the receivership. Seidler v. Branford
Restaurant, supra; Bankers Trust Co. v. Maxson 100 N. J. Eq. 1 (
Ch.
1926); Laudan v. ABC Travel Systems, supra.
What is
crucial is that all parties involved have availed themselves of a
process, the very existence of which is meant to benefit their own class
of preferred creditors. In re Pynn-Hawley, supra, 53, and In
re Francelli Carrier Inc. 77 N. J. Super 522, 527 (Ch. Div. 1962).
In light of the strong precedent amassed by this State's judiciary in
efforts to effectuate that process, this court would be loathe to run
afoul of that which has been so consistently reinforced over the years.
As stated in Laudan, supra, p. 207:
To hold
otherwise would deprive the courts of the services in many cases of
competent
admin
istrators and be subversive of the
admin
istration of this important branch of equity jurisdiction.
Accordingly,
the creditors' motions to have the assignee relinquish their interests
in toto, without deductions for
admin
istration expenses proportionate to the amounts claimed, are hereby
denied.
[Landlord's
Claim]
II. The second
issue to be considered is the claim for rent by the landlord Feldwin
Realty Company. The landlord contends that the rent is owing for a six
month period which terminated on or about
December 12, 1970
. The rental amount involved therein was $1500 per month plus additional
charges for rubbish removal, power, steam and hot water. The assignee
however does question the validity of these latter extra charges. The
landlord also claims that a second lease was entered into with the
assignor which agreement became operative on
September 1, 1970
. This lease covering additional loft premises provided for rent to the
landlord of another $500 plus costs. In total, the realty company is
asserting a lien of some $13,991.04.
In accordance
with N. J. S. A. 2A:44-165-6 the landlord is entitled to priority over
all or any "title, interest, mortgage, judgment, or other
encumbrance created or acquired after machinery or other chattels are
placed in the premises." Since Textile's interest in after acquired
property did not attach until these items were installed for use, it is
clear that Feldwin's claim would be superior to that of Textiles for an
amount equivalent to the sums of the total rents due for a period not
exceeding six months, N. J. S. A. 2A:44-166. Equally certain is that the
purchase money security interests held by Logan and Northern
respectively are paramount to this claim advanced by the landlord since
by their very nature those encumbrances were effectuated before the
machines or chattels were placed in the premises.
Much has been
made by both the assignee and the landlord of the validity of the
distraint initiated just one day prior to the date of the assignment
itself, viz:
December 16, 1970
. However the court is of the opinion that the distraint proceedings as
prescribed in N. J. S. A. 2A:33-1 et seq are irrelevant to the situation
here where the landlord can rely on the strength of the Loft Act
provisions, N. J. S. A. 2A:44-65, by which the efficacy of his lien is
assured once rent payments fall due. Gibralter v. Slapo, 23 N. J.
459 (1957); also see N. J. Pract. Vol. 22 Landlord & Tenant Sec.
1553. Hence, this decision obviates the assignee's argument that the
distraint by the landlord on the goods of the assignor, if in fact
valid, constituted a voidable preference pursuant to N. J. S. A.
2A:19-3. The operable date of a lien created under the authority of the Loft
Act is the first date that the rent becomes overdue. As the facts
here disclose, that date was well beyond the four month period preceding
the date of the assignment for the benefit of creditors within which
time preferential transactions are deemed to transpire, N. J. S. A.
2A:19-3.
The landlord's
lien therefore will be apportioned from that amount claimed by Textile
pursuant to its general secured lien. Ultimate appropriation of that
amount however must be deferred until the priority of the remaining
claimants is determined.
[Relative
Priorities]
III. Next to
be determined are the relative priorities of the landlord's claim under
N. J. S. A. 2A:44-166 and the claim of the federal government for taxes
owing in the amount of $40,601.34.
The
United States
predicates its supremacy on the basis of 31
U. S.
C. A. 191. It should be noted that this statutory provision does not
create a lien in favor of the government but rather such enactment
establishes a general priority in insolvency proceedings in favor of the
United States
for debts owing the government. Beaston v. Farmers Bank of
Delaware
, 37
U. S.
102 (1838); H. B. Agsten & Sons, Inc. v.
Huntington
Trust and Savings Bank, 388 F. 2d 156 (4 Cir. 1967);
U. S.
v. Haddix & Sons, Inc., 252 F. Supp. 634 (E. D. Michigan
1966); Ideco Div. of Dresser
Ind.
v. Clarence Drilling
Co.
, 422 F. 2d 165 (5 Cir. 1970).
The question
of whether a state-created lien has the necessary requisites to be
exexempt from the terms of 31 U. S. C. A. 191 is a matter wholly within
the aegis of Federal Law. U. S. v. Waddill, Holland & Flynn, Inc.
[45-1 USTC ¶9126], 65 Sup.
Ct.
304, 306; 323
U. S.
353 (1945).
It is now well
settled that this government's priority based on the above statute can
only be defeated by "choate", perfected security interests in
existence prior to the time of the obligees' indebtedness to the United
States. U. S. v. Guardanty Trust, 33 F. 2d 533, 537 (8 Cir. 1929)
aff'd. 280
U. S.
478, 50 S. Ct. 212 (1930) and Exchange Bank and Trust Co. v. Tubbs
Mfg. [57-2 USTC ¶9803], 246 F. 2d 141, 143 (5 Cir. 1957) cert. den.
335
U. S.
868, 78
S. Ct.
118 (1958).
Further
elucidation of the general standards set forth in Guaranty Trust
is provided in the cases of U. S. v. Bond [60-2 USTC ¶9532], 279
F. 2d 837 (4 Cir. 1960) and Illinois ex rel. Gordon v. Campbell,
329 U. S. 362, 67 S. Ct. 340 (1946). In Bond the court stated
that under the "choate lien" test it is required that
state-created liens be specific to the point that nothing further need
be done to make the lien enforceable. In
Illinois
ex rel. Gordon v.
Campbell
, the court, by use of a tripartite formula calling for the identity
of the subject asset, the lienor, and the amount of the encumbrance,
added a further embellishment to the general language employed in Guaranty
Trust. See also U. S. v. City of New Britain [54-1 USTC ¶9191],
347
U. S.
81, 74 S. Ct. 367 (1954).
Thus, it is
incumbent upon the landlord to prove to this court that his claim
asserted under the provisions of the Loft Act constitutes a lien,
which under Federal Law, will render such claim superior to that of the
Government's.
Instructive on
this point is the case of U. S. v. Saidman [56-1 USTC ¶9322],
231 F. 2d 503 (Dist. of Col. Cir. 1956). Involved therein was a priority
claim by a landlord who relied on a
District of Columbia
statute which granted to lessors a tacit lien which could be enforced by
attachment, judgment, or by an action against the purchaser of the
encumbered assets. However, the landlord never made use of this remedial
aspect of the statute and was thereby constrained to rely solely on the
face of the statute to create a specific and perfected lien. The court
denied his claim holding that the statute did not intend to place
absolute title or possession of the chattels with the landlord. Without
subsequent enforcement of this statutory lien a "specific and
perfected lien in the sense long understood as essential to overturn the
federal priority" was not created. At p. 507.
[
New Jersey
Distress Law]
Here the facts
disclose that the landlord did avail himself of the distress proceedings
provided by New Jersey statutory law, N. J. S. A. 2A:33-1 et seq., in an
effort to enforce the lien authorized under N. J. S. A. 2A:44-166. Hence
at first impression, assuming arguendo that the distraint was proper, it
would appear that in accord with Saidman the requisites of title
and possession of the assets found on the premises of the debtor were
retained by the landlord. Yet the terms of the distress statute do not
so provide. N. J. S. A. 2A:33-9 grants the debtor tenant a grace period
of ten days within which time he can commence an action to regain the
goods. Since the alleged distraint occurred on
December 15, 1970
and the assignment took place the following day
December 16, 1970
, nine days remained before the lien reached full fruition. Thus in no
way can the landlord be considered to have had, at the date of the
assignment for the benefit of creditors, a claim of the quality
sufficient to defeat the federal priority.
The Supreme
Court of the
United States
decided in this fashion in a case strikingly similar in its facts to the
one at bar. U. S. v. Scovil [55-1 USTC ¶9137], 75 Sup. Ct. 244,
348
U. S.
218 (1955), and in an unpublished opinion the Appellate Division of our
New Jersey Superior Court did likewise. (See In the Matter of the
General Assignment for the Benefit of Creditors of Koelin, Ruesch &
Co., Inc., decided November 19, 1962.) There being ample authority
to support this result, the U. S. Gvernment's claim for taxes due shall
be considered superior to the landlord's lien for rents owing. For
similar reasons the claims of wage earners and the State of
New Jersey
shall also be subordinate to the rights of the Federal Government.
[Wage
Claims]
As regards the
wage claims, the case of
Rob
inson-Anton Textile Co. v. Embroidery Prod. Corp., 97 N. J.
Super. 507 (App. Div. 1967), is dispositive. The court decided there, as
we must here, that the wage claims presented under N. J. S. A. 2A:19-30
and N. J. S. A. 34:11-31-33 were not perfected in the manner nor to the
degree required, as described above, by federal law. There can be no
question therefore that the federal claim warrants priority.
[State's
Tax Claims]
The same must
hold for the State of
New Jersey
's claim of $5,901.84 plus interest for business personal property taxes
and for contributions owed the Division of Employment Security. These
claims, priority of which are founded upon N. J. S. A. 54:49-1, were
never reduced to possession by the State and are therefore ineffectual
to offset the federal claim under 31 U. S. C. Sec. 191.
[Legal
Fees]
IV. Given the
criteria (as set forth in Point III) by which a state-created lien
preempts the federal priority arising out of 31 U. S. C. 191, the
question of whether the legal fees sought by the secured parties meet
that standard is easily resolved. It is manifestly clear that they do
not. Unlike the purchase money and general secured interests to which
the respective agreements providing for attorneys' fees attached wherein
the identity of the lienor, the subject property, and the amount of the
lien were all certain at the time the encumbrances arose (see U. S.
v. City of New Britain, supra) the provisions pertaining to the
attorneys' fees cannot be defined with definiteness. This is so because
the specific ultimate amounts of these claims were dependent upon future
events which at the time of these claims inception were not entirely
foreseeable. See U. S. v. Pioneer American Ins. Co. [63-2 USTC ¶9532],
83 S. Ct. 1651; 374
U. S.
84 (1963). In fact, according to the terms of the agreement the amount
representing each claim could not be computed until at the very earliest
the date of the assignment when the final value of the liens could be
ascertained. Moreover the sums certain for these claims might well have
been formulated on the basis of the proofs submitted in the affidavits
of services.
This court
holds, therefore, that for present purposes the claims for reasonable
attorneys' fees be considered distinct and apart from the security
agreements from which they arose and in such posture they must be
treated as inferior to the federal tax claim under 31 U. S. C. 191.
[Priority]
V. In dealing
with the remaining group of claimants, i. e., the wage earners,
the landlord, and the State of
New Jersey
, the intent of the New Jersey Legislature is determinative. Accordingly
therefore, the wage claims presented herein must prevail. As provided in
the Assignment Statute, N. J. S. A. 2A:19-30, wage claims "shall be
preferred and shall be paid by the assignee before any other claim or
debt" and pursuant to N. J. S. A. 34:11-33 wages of employees who
have bestowed labor or services upon the personal property of a
manufacturer shall be paid after sale of such property "to such
employees in preference to any other creditors and without delay."
See also N. J. S. A. 14A:21(3).
Subsequent
interpretation of these provisions has left little doubt of the favored
nature of wage claims. In Long v. Republic Varnish Enamel & Co.,
115 N. J. Eq. 212 (E&A 1933), involving the payment of wages during
the statutory preference period in accordance with Sec. 83 of the
General Corporation Act, the court stated:
It has long
been regarded as a proper function of the state to foster the welfare
and safeguard the interests of wage-earners. Economic and other
considerations underlie this long established state policy. The
amelioration of the condition of labor is recognized by enlightened
government as a duty of paramount importance. And this solicitude for
the wage-earners is not alone for the members of the favored class, but
for the common good. It is conductive, if not, indeed, essential to the
well-being of society that the economic security and contentment of the
class that contributes so largely to the furnishing of its material
needs be effected and sedulously maintained. An enactment such as this
should be construed in the light of this sound and firmly established
policy. P. 215, 216.
See
also
Rob
inson-Anton Textile v. Emb. Prod. Corp., supra.
This
philosophy has been the consistent justification for the establishment
of the primacy of wage claims vis a vis, landlords' liens. This
policy was reiterated in Appel v. Republic Footwear & Co., 70
N. J. Super. 335 (Ch. Div. 1961) even though there the landlord who had
distrained for rent under N. J. S. A. 2A:33-1 et seq. was first
in point of time to the wage claimant's lien under N. J. S. A. 14:14-21.
The court ruled as it did, however, because the language of the statute,
to the effect that wage claimants are prior to "all other liens
that can or may be acquired" had long been considered as entitling
those claims to priority over the landlord. P. 339. See also Whitehead
v. Whitehead Pottery Co., 115 N. J. Eq. 257 (
Ch.
1937), and
Philadelphia
Dairy Prod. Co., Inc. v. Summit Sweet Shops, Inc., 113 N. J. Eq.
458 (
Ch.
1933).
Furthermore
the Loft Act, N. J. S. A. 2A:44-165 et seq., does not
affect the priority of the wage claims. Although there is no holding
addressed specifically to this point, the courts have ruled that an
analogous statute, N. J. S. A. 2A:44-66 creating a mechanic's lien and
embodied within the same chapter of Title 2A as the Loft Act does
not upset the wage-earners preferred status. Thus, the landlord's lien
involved herein should be viewed in pari materia with the
mechanic's lien, to the end that the primacy of the wage claims should
still be recognized. J. S. Pierson Co. v. West Orange-Verona Bldg.
Co., 112 N. J. Eq. 426, 428 (Ch. 1933).
Added indicia
of the legislature's intent is evidenced within the context of the
Assignment Statute itself, N. J. S. A. 2A:19-1 et seq. Therein
the Legislature has immediately preceded the section dealing with the
landlord's lien, N. J. S. A. 2A:19-31, by that part pertinent to wage
claims, N. J. S. A. 2A:19-30. Although not creating a lien, the Assignment
Act does provide wage claimants with a "preferred" status
payable "before any other claims or debts." Certainly meant to
be included in that category must be considered those claims or debts
provided for in the immediately succeeding section of the Act.
This same
legislative intendment quarantees the wage-earner's priority over the
State's claim for business personal property taxes under N. J. S. A.
54:11A-1 et seq. and N. J. S. A. 54:49-1. One such enactment
reflecting this purpose is N. J. S. A. 54:4-106 which, while providing
for the payment of municipal personal property taxes out of the first
moneys received by an assignee or a receiver, explicitly declares wage
liens uneffected by the terms of that section. See Spark v. La Reine
Hotel Corp., 112 N. J. Eq. 398 (
Ch.
1933).
Although the
tax in question here was levied on behalf of the State rather than by
one of its political subdivisions, there is ample authority to the
effect that both municipal and State tax claims are subordinate to liens
of wage earners. Decorative Utilities v. National Motor Corp.,
123 N. J. Eq. 48 (
Ch.
1938) and Lerman v. Lincoln Novelty Co., 130 N. J. Eq. 144 (
Ch.
1941).
Still
remaining however is the vexing problem of whether the varying amounts
identified by the wage claimants as payments by the employer for
vacation pay constitute "wages fully earned, though not yet
payable" within the purview of the Assignment Act, N. J. S. A.
2A:19-30. The wage claimants argue that moneys going into the special
welfare benefit fund are tantamount to deferred payments earned by the
employees in consideration for services rendered. Hence they contend
that these amounts can in no way be considered gratuities, gifts, or
even pension funds founded on policies of good will rather than on
direct labor costs.
There is no
doubt that if the wage claimants are correct and the vacation pay,
provided for by the Collective Bargaining Agreement of July 16, 1970
entered into between the assignor corporation and Local 222 of the ILGWU
is, in fact, due and owing each employee for services rendered, such
funds must be considered as "wages within the contemplation of the Assignment
Act. In re Wil-low Caf. 111 F. 2d 429, 432 (5 Cir. 1940); Textile
Workers Union v.
Paris
Fabric Mills 27 N. J. Super 381, 384 (App. Div. 1952; Botony
Mills Inc. v. Textile Workers
Union
50 N. J. Super 18, 30 (App. Div. 1958); In re National
Meat Supply Co. 66 N. J. Super 423 (Cty.
Ct.
1961).
Nevertheless,
neither the express terms of the relied upon Collective Bargaining
Agreement nor judicial precedent pertaining to similar provisions in
other collective bargaining agreements, U. S. v. Embassy Rest. Inc.
[59-1 USTC ¶9297] 79 Sup.
Ct.
554; 359
U. S.
29 (1959); Joint Industries Board of Election
Ind.
v.
United States
88 Sup.
Ct.
1491; 391
U. S.
224 (1968); In re National Meat Supply Co. supra, support the
wage claimant's view.
The agreement
effective as of
July 16, 1970
served to renew the contract (hereafter referred to as the Main
Agreement) which had expired on
July 15, 1970
. According to the terms of said Main Agreement the employer is to pay
weekly to the union a sum equivalent to 31/2% (subject to subsequent
increases) of the total gross weekly payroll of all the nonsupervisory
production, maintenance, packing and shipping workers employed in its
shops. 2% of these payments are to be allocated towards the Health and
Welfare Fund, a "trust fund" maintained by the
Union
for the purpose of providing workers with health, welfare, and
recreation benefits. However in Sec. A, sub. sec. (a)(1) the Agreement
expressly states "that none of the payments made hereunder by the
employer shall constitute or be deemed wages due to the workers."
In addition, the Health and Welfare Fund as described in Sec. A, sub.
sec. (b) of the Main Agreement is not meant to extend to an individual
worker any legal or equitable right, title or interest in, or claim
against his or any other employers' payments toward the Fund or against
the Fund itself. Thus, solely the Union organization as contrasted to an
individual employee in his capacity as a wage earner can lay claim to
the monies apportioned to the Fund. There is absolutely no provision in
the contract allowing a worker on his own initiative to secure such
amount due him as a consideration for his labors. Enforcement of the
trust provision is the exclusive province of either the Board of
Trustees of the Fund or of the Union organization.
In a federal
bankruptcy proceeding the U. S. Supreme Court had occasion to rule upon
the terms of a similar collective bargaining agreement which provided
for a union welfare fund. The decision there was that the contributions
of the employer were not entitled to priority as "wages due the
workmen" under the Bankruptcy Act.
U. S.
v. Embassy Rest. Inc. supra. In examining the nature of the
employers' payments to the fund the court took special note of the
following:
They
are flat sums of $8 per month for each workman. The amount is without
relation to his hours, wages, or productivity. It is due the trustees,
not the workman, and the latter has no legal interest in it whatever. A
workman cannot even compel payments by a defaulting employer * * *.
Finally, Embassy's obligation is to contribute sums to the trustees, not
to its workmen: it is enforceable only by the trustees who enjoy not
only sole title, but the exclusive management of the funds. P. 556.
The mechanics
and incidents of that fund being virtually identical to the correlative
aspects of the subject fund, I am constrained to reach the same
conclusion. Moreover in the instant case the employees' representatives
have all but contracted away the legal contentions proffered by the wage
claimants. In contrast to other collective bargain agreement situations,
In re National Meat Supply Co., supra, the employer's payments
here were not characterized as "wages." To the contrary, the
agreement specifically stated, as described above, that these payments
were not to be construed as wages. This fact alone more than reinforces
the court's decision, it requires it.
Accordingly,
it is the opinion of this court that the amounts owing the employees out
of the Health and Welfare Fund be deemed not to constitute
"wages" within the intendment of N. J. S. A. 2A:19-30.
Conclusion
It follows
from that which has been decided above that the purchase money security
interests of
Logan
and Northern should be satisfied first and foremost. Next in terms of
priority is Textile which shall recover that amount of its claim
outstanding, less that portion of its lien to which the landlord has
laid greater claim (See Point 2). This amount will be included in the
total apportioned to the general creditors. Among this latter group the
Federal Government's claim will take precedence (See Point 3) and the
small balance then remaining shall be allocated first to a satisfaction
of the attorneys' fees and then towards partial payment of the wage
claims.
The court has
considered the requests for counsel fees by the attorneys for
Logan
, Northern and Textile and finds that said requests are reasonable. The
fees sought by Hein, Smith, Mooney and Berezin, Esqs. of $1750, Fox and
Fox, Esqs., of $1340.90, and Kleinberg, Maroney, Masterson and
Schachter, Esqs. $3580.50 are hereby allowed and are to be paid by the
Assignee upon final accounting.
Since the
claims of
Logan
and Northern have been paid by the Assignee pursuant to an order of this
court dated
June 25, 1971
an order may be submitted to remit their respective proportionate shares
of the assignees' commissions and expenses. In re Xaviers, Inc.,
supra.
[59-2 USTC
¶9586]
United States of America
, Plaintiff v. J. O. Popwell, Julia Popwell, W. C. Lloyd, et al.,
Defendants
U.
S. District Court, North. Dist.
Ala.
, So. Div., Civil Action No. 9249, 6/30/59
[1939 Code Sec. 3672--similar to 1954 Code Sec. 6323]
Lien for taxes: Priority as against mortgagee: Fact finding.--The
court found, without stating reasons, that the lien for federal taxes
was subordinate to a mortgage lien against a parcel of real estate which
was the subject of condemnation proceedings. The
United States
was declared to have a lien for taxes on a second parcel of real estate
as to which there were no adverse claims.
W. L.
Longshore, United States Attorney, M. L. Tanner, Assistant United States
Attorney,
Federal
Building
,
Birmingham
,
Ala.
, for plaintiff. L. Drew Redden, Rogers, Howard & Redden, for
Popwell. J. S. Mead, Mead and
Norman
,
Frank
Nelson
Building
,
Birmingham
,
Ala.
, for Lloyd. Maurice F. Bishop, Frank Nelson Building, Birmingham, Ala.
and L. H. Ellis, Columbiana, Ala., for Shelby County.
LYNNE,
District Judge:
This cause,
coming on to be heard at Birmingham, Alabama on the 29th day of June,
1959, was submitted to the Court on the complaint, the answer of the
defendants, J. O. Popwell and Julia Popwell, the answer of the
defendant, W. C. Lloyd, and order of the Court entered on the pretrial
hearing, and the Court, fully understanding the issues and the evidence,
finds as follows:
1. That there
has heretofore been entered by the Tax Court of the United States, on
June 26, 1958, a judgment against the defendants, J. O. Popwell and
Julia Popwell, in the amount of $359,864.45, representing a deficiency
on taxes, penalties and interest for the years 1949, 1950 and 1951,
redetermined by the Tax Court on said date by the addition of $9,907.70
representing taxes and interest assessed August 31, 1955, the total
amount of said Tax Court judgment being $369,772.15, which judgment, the
Court finds is not here subject to collateral attack and is due to be
confirmed.
2. The
defendant, J. O. Popwell, is indebted to the
United States of America
in the sum of $14,258.65 for withholding taxes for the taxable quarterly
periods beginning with the first quarter of 1949 and ending with the
fourth quarter of 1954, this figure including taxes, penalties and
interest assessed.
3. The
defendant, J. O. Popwell, is indebted to the
United States
in the sum of $3,814.74 for federal unemployment taxes for the years
1949 to 1952, inclusive, and penalties and interest thereon.
[Priority
of Mortgage Lien]
4. The
defendant, W. C. Lloyd, has a valid and prior mortgage lien on the first
parcel of real estate described in paragraph IX of the complaint, as the
same is hereinafter more fully described. The indebtedness owing by the
defendant, J. O. Popwell, to the said W. C. Lloyd is in the principal
amount of $15,000.00, with interest to date of $6,766.67. The lien of
the defendant, W. C. Lloyd, is a lien against the interest of the
defendants, J. O. Popwell and Julia Popwell, in said real estate
hereinafter more fully described.
5. The
mortgage of W. C. Lloyd provides for the payment of a reasonable
attorney's fee which, the Court finds to be in the sum of $2,500.00, and
the Court finds that the total amount of the claim of the defendant, W.
C. Lloyd, protected by said lien is $24,266.67 and that future interest
will accrue in favor of said defendant protected by said lien in the sum
of $100.00 per month.
6. That the
claim of the United States against said parcel of real estate heretofore
referred to is subject to and inferior to said lien of defendant, W. C.
Lloyd. The Court understands that most of said parcel of real estate has
been the subject of condemnation proceedings in the Circuit Court of
Shelby County, Alabama; that a final judgment has been rendered in said
cause by said court, but that the same is presently on appeal to the
Supreme Court of Alabama. The Court finds that, in the event the
condemnation disposition of said cause results in payment in said
condemnation proceedings in excess of the amount of the claim of W. C.
Lloyd at the time of distribution, any judgment or decree in this case
should be without prejudice to the rights of the United States to
proceed toward the collection of the excess.
[Second
Parcel Subject to Tax Lien]
7. That there
are no claims adverse to the claims of the United States herein against
the second parcel of real estate described in paragraph IX of the
complaint, and the Court is due to decree a lien in favor of the United
States and against the interest of the defendants, J. O. Popwell and
Julia Popwell, to the extent of the separate and several indebtedness of
each of said defendants as to taxes as hereinafter adjudged.
[Decree]
PREMISES
CONSIDERED, It is by the Court CONSIDERED, ORDERED, ADJUDGED and DECREED
as follows:
1. That
plaintiff, the United States of America, have and recover of the
defendants, J. O. Popwell and Julia Popwell, the sum of $369,772.15,
with interest as allowed by law.
2. That the
plaintiff, the United States of America, have and recover of the
defendant, J. O. Popwell, the further and additional sum of $18,073.39,
with interest as allowed by law.
3. That the
plaintiff, the United States of America, be, and it is hereby, declared
to have a lien on the following described real estate situated in Shelby
County, Alabama:
"All
of that part of the SE 1/4 of NE 1/4 lying South and West of the Florida
Short Line Highway, in Section 29 T19 R1W except a tract of land
described as follows: Cornering on the East boundary line of said SE 1/4
of NE 1/4 of said S. 29 T19 R1W 100 feet from the center of the A. B.
& A. Ry., on the North side of said RR, at the right of way of said
RR, thence West along the boundary of said right of way 640 feet, thence
North 100 feet, thence East 640 feet, thence South 100 feet to the point
of beginning, containing 2 acres, more or less, in said exception. Also,
the N 1/2 of the SE 1/4 of S 29 T19 R1W except the following described
tracts, to wit: 10A in the NW 1/4 of the SE 1/4 of Section 29 described
as follows: Cornering at the SE corner of said NW 1/4 of SE 1/4 and run
east to the creek, thence up said creek to where the West boundary line
of said forty crosses said creek, thence South to the Southwest corner
of said forth A, the starting point. Also except from NW last described
80A that part of the NW 1/4 of the SE 1/4 of said S 29 described as
cornering on the North boundary line of said NW 1/4 SE 1/4 of said S 29
at the Third Hallow west of the W. M. Cooper dwelling house which said
point in said Hallow is a distance of 406 feet West of the NE corner of
said NW 1/4 of SE 1/4 of said S 29 and running thence South a distance
of 530 feet, more or less, to the creek, to a persimmon and a beech tree
on the North bank of the creek, thence up said creek around the NW
corner of said 40A, thence East along the North boundary line of said
40A to the starting point in the said third Hallow and containing 20A
more or less. Also except that part of the N 1/2 of the SE 1/4 of said S
29 described as follows: Cornering at the SE corner of the NE 1/4 of SE
1/4 of said Section 29 and running North to the Creek, thence up said
creek to where it crosses the South boundary line of said N 1/2 of SE
1/4, thence East along said South boundary line to the point of
beginning, subject to the right of way of the A. B. & A. RR., also
subject to the Highway right of way and the right of ways of the Alabama
Power Company."
4-A. That the
defendant, W. C. Lloyd, be, and he is hereby, declared to possess to
valid mortgage lien, prior to and superior to, any lien of the United
States of America, based on any judgment for taxes herein, against the
interest of the defendants, J. O. Popwell and Julia Popwell, in the
following described real estate situated in Shelby County, Alabama:
"Begin
at the Northeast corner of the Northeast 1/4 of the Northeast 1/4 of
Section 35 T18 R2W and run South 667.4 feet to intersection with Highway
Right of Way, thence at an angle of 117 25' to right in a Northwesterly
direction along the middle line of Highway Right of Way 223.4 feet,
thence Northwesterly along right of way 650.1 feet, thence Northwesterly
along right of way 293.3 feet to intersection with North boundary line
of 40 acres 941.4 feet to point of beginning, said property being
situated in Shelby County, Alabama."
That
said lien of W. C. Lloyd on the above described real estate protects an
indebtedness consisting of principal in the amount of $15,000.00,
interest in the amount of $6,766.67, and a reasonable attorney's fee
which is hereby fixed by the Court in favor of J. S. Mead, as attorney
for W. C. Lloyd, in the amount of $2,500.00. The total of said
indebtedness thus protected is $24,266.67 which the Court hereby
adjudges to be the indebtedness of the defendant, J. O. Popwell, to the
defendant, W. C. Lloyd, which said indebtedness will be increased by
future interest on said principal amount of said $15,000.00 at the rate
of $100.00 per month.
4-B. That
approximately one and one-half acres, more or less, of the within
described real estate was not subjected to said condemnation
proceedings, but is subject to the prior lien of the mortgage of the
defendant, W. C. Lloyd; that the United States of America is hereby
declared to have a lien against said one and one-half acres of land,
subject to said prior mortgage lien of the said W. C. Lloyd, and power
of sale, foreclosure and other remedies contained in said mortgage.
5. That the
lien of said W. C. Lloyd fixed in paragraphs 4-A and 4-B hereof be, and
the same is hereby, declared to be a lien against the interest of both
the defendant, J. O. Popwell, and the defendant, Julia Popwell, in said
real estate described in said paragraph 4-A.
6. That,
subject to the lien fixed in favor of the defendant, W. C. Lloyd,
herein, the plaintiff, the United States of America, shall have the
right to proceed to the enforcement of this judgment against the
proceeds received through the condemnation proceedings heretofore
referred to, and, in the event the proceeds from said condemnation
action at the time of the distribution thereof exceed the claim of W. C.
Lloyd at such time, as herein fixed, and as increased by future
interest, less any additional credit due to be applied against said
claim subsequent to this decree, this decree is specifically declared to
be without prejudice to the right of the United States of America to
compel the collection of such excess in its behalf.
7. That the
enforcement of the lien of the United States herein fixed in favor of
the United States and against that realty described in paragraph 3
hereof be deferred for a period of ninety (90) days from and after the
date of this decree.
8. That the
costs of this proceeding be, and they are hereby, taxed against the
defendants, J. O. Popwell and Julia Popwell, for which let execution
issue; provided, however, that execution hereunder be and the same is
hereby stayed for a period of ninety (90) days from and after the date
of this decree.
[55-2 USTC
¶9739]E. B. Herron and S. J. Wilson, Plaintiffs v. The Pacific Fire
Insurance Company, et al., Defendants, and
United States of America
, Intervenor, and The Harpeth National Bank, Intervenor
In
the United States District Court for the Middle District of Tennessee,
Nashville Division, Civil No. 1920, October 7, 1955
[1939 Code Secs. 3670, 3672--substantially unchanged in 1954 Code Secs.
6321, 6323]
Lien for taxes: Priority in time.--A tax lien of the U. S.
government was filed on September 29, 1952, against a judgment. The
liens of plaintiff and intervenor are both unpaid and prior to the claim
of the U. S. As the total amount of the judgment will not satisfy the
liens of plaintiff and intervenor, the entire judgment is ordered paid
to plaintiff and intervenor in whole or part satisfaction of their
respective liens.
Henderson
& Henderson and R. L. Richardson of said firm of
Franklin
,
Tenn.
, for plaintiffs. Fred Elledge, United States Attorney at
Nashville
,
Tenn.
, for intervenor,
United States
. Ward Hudgins,
Nashville
Trust
Building
,
Nashville
,
Tenn.
, for intervenor, Harpeth National Bank. Reber Boult,
American
Trust
Building
,
Nashville
,
Tenn.
, for defendant companies.
Judgment
MILLER,
District Judge:
Be it
remembered that by consent order heretofore entered in this cause, a
judgment against the defendant insurance companies has been entered in
the total amount of Sixteen Thousand Eight Hundred ($16,800.00) Dollars,
and
It appearing
to the Court that the lien of S. J. Wilson was recorded on May 18, 1949,
of record in Trust Deed Book 77, page 294 of the Register's Office of
Williamson County, Tennessee, and
It further
appearing that the lien of the Harpeth National Bank, filed for record
on July 28, 1952, of record in Trust Deed Book 83, page 241 of the
Register's Office of Williamson County, are both unpaid and are prior to
the claim of the United States of America, intervenor, whose claim was
filed for record on September 29, 1952, and
It further
appearing to the Court that the tax lien of the Government in the amount
of Thirteen Thousand Seven Hundred Seventy-Two and 67/100 ($13,772.67)
Dollars was filed in the Register's Office of Williamson County, on
September 29, 1952, and
It appearing
that the total amount of the judgment will not satisfy the liens of S.
J. Wilson and the Harpeth National Bank,
IT IS HEREBY
ORDERED, ADJUDGED AND DECREED that the entire sum will be paid to S. J.
Wilson and the Harpeth National Bank in whole or part satisfaction of
their respective liens, and it further appearing to the Court that all
of the parties consent hereto, it is
FURTHER
ORDERED, ADJUDGED AND DECREED that R. L. Richardson and the Firm of
Henderson
&
Henderson
, and Ward Hudgins, Attorneys of record, will be allowed a fee of
fifteen percent (15%) of the judgment.
[61-1 USTC
¶9336]Charles M. Trammel, Bert B. Rand and Hans A. Nathan, co-partners,
d/b/a Trammel, Rand & Nathan, Plaintiffs v. Herman Kimmel, et al.,
Defendants United States of America, Plaintiff v. Herman Kimmel, et al.,
Defendants Herman Kimmel, Plaintiff v. Laurie W. Tomlinson, District
Director of Internal Revenue, Defendant
U. S. Dist. Ct., So.
Dist. Fla., Miami Div., Civil Nos. 10,189-M,
8321-M, 8209-M, 1/24/61
Tax liens: Validity against mortgagees: Mortgagor in default.--The
tax lien of the United States was not superior to that of the mortgagee
of property sold at a public sale after default of the mortgagor.
J. P. Booth,
Miami
,
Fla.
, Trammell, Rand &
Nathan
,
Wash.
, D. C., for plaintiff. E. C. Madsen, U. S. Attorney,
Miami
,
Fla.
, for defendant. L. Friedman, Receiver, Miami, Fla., Gurney & Kafer,
Winter Park, Fla., for Park Ave. Art Gallery. Winters, Cook, Brackett
& Lord, West Palm Beach, Fla., for M. Lyon & West Palm Beach
Federal. M. Frumkes, Miami, Fla., for S. Leavitt Co. J. Ackerman, West
Palm Beach, Fla., for Trosby, Inc. J. Abbott, Miami, Fla., for Walker
Jewelry. Quinan, Johnson & Swanko,
Miami
,
Fla.
, for J. Nicholas. D. Koller,
Miami
,
Fla.
, for
Riviera Beach
Art
Gallery & Hendersonville
Art
Gallery
. B. Arbuse,
Palm Beach
,
Fla.
, for H. Kimmel. J. E. Worton,
Miami
,
Fla.
, for
I.
Aralanian. Johnson, Johnson & Brant,
West Palm Beach
,
Fla.
, for Milano Furniture.
Final
Judgment of Foreclosure in 10,189-M-Civil Consolidated
MARTIN,
Circuit Judge:
This cause
duly came on for final hearing and trial pursuant to the order made
herein on January 13, 1961, plaintiffs appearing by their attorney, H.
I. Fischbach, Esq., defendant United States of America appearing by E.
Coleman Madsen, United States Attorney, Lavinia L. Redd, Esq., Assistant
U. S. Attorney, and John J. McCarthy, Trial Attorney of the Department
of Justice, of counsel; that said parties having submitted their
respective proofs, upon due consideration of which the Court being fully
advised, it is hereby
Ordered,
Adjudged and Decreed
1. The Court
has jurisdiction of the parties and of the subject matter hereof.
2. Due and
legal service has been had upon the defendants herein.
3. The
defaults heretofore entered in this cause are ratified and confirmed.
4. The
material allegations of the complaint have been established by competent
evidence. The defendants Herman Kimmel and Helen Kimmel, his wife, are
now seized and possessed of the mortgaged premises which they hold as
tenants by the entireties. In acquiring title to said premises, each of
said defendants executed a note pledging their individual credit for and
gave a mortgage to secure purchase money. There has never been any
conveyance of any interest in the mortgaged premises by defendant Herman
Kimmel to defendant Helen Kimmel, his wife.
5. The
equities of this cause are with the plaintiffs.
6. There is
due to plaintiffs $40,000.00 as unpaid principal on the indebtedness
agreed to be paid in the mortgage herein foreclosed and the note secured
thereby, $3,153.94 as interest thereon computed at the rate provided in
said note prior to its maturity and at 6% per annum from maturity to the
date of this decree, and at the per diem rate of $6.94 until paid,
$4,000.00 hereby allowed as reasonable attorney's fees, $170.96 for
costs and disbursements necessarily incurred in the prosecution of this
action, making a total sum of $47,324.90 now due to plaintiffs for which
defendants Herman Kimmel and Helen Kimmel, his wife, are jointly and
severally liable.
7. A lien is
held by plaintiffs for the total sum specified in the preceding
paragraph superior in dignity to any right, title, interest or claim of
the defendants upon the mortgaged premises herein foreclosed.
8. The
mortgaged premises are situated in
Palm Beach County
,
Florida
, and are legally described as:
Lots
26, 27 and 28 Block 3, of KIRKLINGTON PARK, a subdivision in the town of
Riviera Beach, and also the East one-half of the alley lying West of
said lots, which is now abandoned, bounded on the north by the north
line of said Lot 26 if extended westward and bounded on the south by the
south line of Lot 28 if extended westward, all as shown upon the plat of
said subdivision recorded in the office of the Clerk of the Circuit
Court in and for Palm Beach County, Florida, in Plat Book 14, page 4.
Together
with all and singular the tenements, hereditaments, easements and
appurtenances thereunto belonging, or in anywise appertaining, and also
all the estate, right, title, interest and all claims and demands
whatsoever, as well in law as in equity, of said Mortgagors in and to
the same, and every part and parcel thereof, and also all gas and
electric fixtures, radiators, heaters, air conditioning equipment,
machinery boilers, ranges, elevators and motors, bath tubs, sinks, water
closets, water basins, pipes, faucets, and other plumbing and heating
fixtures, mantels, refrigerating plants and ice boxes, window screens,
screen doors, venetian blinds, storm shutters and awnings, which are now
or may hereafter pertain to or be used with, in or on said premises.
[Public
Sale]
9. If the
aforesaid total sum due to the plaintiffs, plus said per diem interest
from the date of this decree, and all costs incurred subsequent to the
date of this decree, are not paid forthwith, R. M. MacArthur, Esq., of
Miami, Florida, hereby appointed as Special Master, shall sell the
mortgaged premises at public sale within the legal hours of sale on
February 6, 1961, to the highest and best bidder or bidders for cash at
the front door of the Palm Beach County Courthouse in the City of West
Palm Beach, Florida, after having published notice of such sale once
only at least 7 days prior thereto in a newspaper circulated in Palm
Beach County, Florida. Such notice shall be concise and shall contain a
description of the property to be sold, the time and place of sale, a
statement that the sale will be made pursuant to the final judgment of
foreclosure herein, specifying the Court in which this cause is pending,
the docket number hereof, and the name and address of said Special
Master.
[Title
Passes to New Purchaser After
Sale
]
10. After sale
of the mortgaged premises, the Special Master shall promptly complete
and file his Certificates of Sale and report in substantially the form
prescribed by Chapter 702, Florida Statutes, and if no objections to
said sale be filed herein within 10 days after the filing of said
Certificate of Sale and report, the Special Master shall thereupon
forthwith complete and file a Certificate of Title in substantially the
form prescribed by Chapter 702, Florida Statutes, and upon the filing of
such Certificate of Title, the sale shall stand confirmed as certified
by said Special Master and title to the mortgaged property shall pass
fully and completely to the purchaser named in such certificate without
the necessity of any further proceedings or instruments upon recordation
in the office of the Clerk of the Circuit Court of the Fifteenth
Judicial Circuit of Florida in and for Palm Beach County.
[Mortgagee
Gets Proceeds After Costs]
11. After
confirmation of such sale, whether confirmation be by the Special Master
filing the Certificate of Title or by further order of this Court ruling
upon objections to such sale, the Special Master shall make distribution
of the proceeds of such sale by paying:
(a) All costs
and expenses of these proceedings subsequent to the entry of this final
judgment of foreclosure including the cost of publishing the notice of
sale and the fee allowed by the Court for the services of a Special
Master, the cost of Federal and State documentary stamps affixed to the
Certificate of Title based upon the amount paid for the property, plus
the costs, if paid by the purchaser, and the fee allowed to the attorney
for the plaintiffs.
(b) The total
sum found to be due to plaintiffs, less the attorney's fee mentioned in
subparagraph (a) above, plus interest at the per diem rate prescribed
herein from the date of this decree to the date of such sale.
(c) If the
total amount realized on the sale exceeds the total of the sums ordered
to be paid by the provisions of this judgment, the Special Master shall
deposit the surplus in the Registry of the Court to be disbursed as the
Court shall hereafter direct.
(d) Upon
confirmation of the sale, whether by the Special Master filing the
Certificate of Title herein or by order of the Court ruling upon
objections to the sale, defendants and any and all persons claiming by,
through, or under defendants, or any of them since the filing of the Lis
Pendens herein are and shall be forever barred and foreclosed of and
from all right, title, interest, claim, or demand of any kind or nature
whatsoever in and to the property herein described, and the purchaser at
the sale, his representatives or assigns, shall be let into possession
thereof.
[62-2 USTC
¶9796]United States of America, Plaintiff v. Mary Dwyer; William Dwyer;
Armour Fertilizer Works Division of Armour & Company; Gregory-Doyle,
Inc.; Catherine E. Beck; Alexander B. Beck; Stephen Huggard; Lauchner
Motors, Inc.; New York State Tax Commission; Sadie Schwartz; Joseph
Harris; Constance Dosch; County of Nassau; Town of Oyster Bay; Board of
Education, Union Free School District No. 17, Town of Oyster Bay;
Hicksville Water District; "John Doe"; and "Richard
Roe"; the names of the last three defendants being fictitious,
their true names being unknown to plaintiff, the persons intended being
tenants, occupants or other persons, if any, having or claiming some
interest in the premises under foreclosure, Defendants
U.
S. District Court, East. Dist. N. Y., Civil Action 62-C-331, 209 FSupp
727,
10/18/62
[1954 Code Secs. 6321 and 6323]
Foreclosure of Federal income tax liens: Priority over after-accrued
county school taxes: Payment of school tax liens as
"expenses."--A Federal income tax lien which has attached
prior to a lien for after-accrued county school taxes is superior
thereto under the doctrine that "the first in time is the first in
right." Laws of the State of New York which provide that local
taxes shall be considered as "expenses," which must be first
paid before a surplus shall be deemed to exist, do not change this
doctrine as applied to prior Federal income tax liens. As to one tax
lien, however, which was filed by the
United States
after the accrual of local taxes, the local tax lien took precedence
over the Federal tax lien.
Joseph P.
Hoey, United States Attorney, Brooklyn, Kalman V. Gallop, Assistant
United States Attorney, New York City, New York, for plaintiff. Paul J.
Leach, for Constance Dosch; Burlant & Catalano, 380 S. Oyster Bay
Road, Hicksville, New York, for Board of Education, Union Free School,
District No. 17, Town of Oyster Bay; Bertram Harnett, 598 Madison Ave.,
New York City, N. Y., for County of Nassau; Peter F. Curran, 25 W. 43rd
St., New York City 36, N. Y., for Armour Fertilizer Works Division of
Armour & Co.; Attilio E. Braune, Town Hall, Oyster Bay, New York,
for Town of Oyster Bay.
RAYFIEL,
District Judge:
On June 30,
1953 the District Director of Internal Revenue in Brooklyn, New York,
whose jurisdiction included Nassau County, wherein the defendant Mary
Dwyer resided, made an assessment against her in the sum of $116,142.60
covering the unpaid balance of her income taxes for the years 1946, 1947
and 1948, together with interest and penalties. Thereafter, on November
20, 1953, notice of said tax lien was filed by the United States against
the defendant taxpayer in the office of the County Clerk of Nassau
County, New York, in the sum of $152,526.90, which did not reflect
payments thereon previously made by her, aggregating $36,394.30.
By agreement
between the taxpayer and the District Director (she signed Tax
Collection Waiver Form 900) the period during which collection of the
tax could be made was extended to
December 31, 1964
.
On
October 6, 1961
the said District Director filed another tax lien against her in the
office of said
County
Clerk
in the sum of $733.52, covering unpaid income taxes, penalties and
interest for the year 1953.
At the time
the District Director filed the first tax lien the taxpayer owned
certain real property n
Nassau
County
described as Lots 12 to 146, inclusive, 156 and 259. Pursuant to the
applicable provisions of the Nassau County Administrative Code, School
taxes were levied against the said lots for the year 1957-1958, and Town
taxes for the year 1958. The taxpayer defaulted in the payment thereof
on Lots 42 to 45, inclusive, 156 and 259. By reason of such default the
Treasurer of Nassau County caused those lots to be included in a list of
lands covered by a notice of the proposed sale of
Nassau
County
tax liens, published as required by said Administrative Code. On
December 1, 1958
the
County
Treasurer
sold the tax lien on the aforesaid lots to the defendant Sadie Schwartz
at public auction. The property not having been redeemed from said tax
lien during the period provided by law, the Treasurer of Nassau County
conveyed the said lots 42 tto 45, inclusive, 156 and 259 to the
defendant Sadie Schwartz on
January 5, 1960
.
Thereafter
School taxes were levied against said Lots for the year 1960-1961 and
Town taxes for the year 1961. Again there was a default in the payment
of the taxes and the resulting tax lien was sold at public auction to
the defendant Joseph Harris.
School taxes
were levied against
Lot
12 for 1960-1961 and Town takes for 1961. The taxpayer again defaulted
and the tax lien thereon was sold at public auction to the defendant
Constance Dosch.
On March 30,
1962 the United States of America commenced this action under Sections
7401, 7402(a) and 7403 of Title 26, U. S. Code, and named as parties
defendant, inter alia, the taxpayer, the aforementioned Sadie
Schwartz, Joseph Harris, and Constance Dosch, and the County of Nassau.
The taxpayer and the defendants Sadie Schwartz and Joseph Harris
defaulted in pleading. The defendant Constance Dosch appeared by
attorney. The
County
of
Nassau
appeared and answered the complaint. The other defendants named either
defaulted in pleading or appeared and waived notice of all proceedings
except those relating to the disposition of surplus moneys.
The
United States
now makes this motion (1) for summary judgment under Rule 56 of the
Federal Rules of Civil Procedure and (2) to amend the title of the
action by striking therefrom the name "John Doe", a tenant in
possession, and substituting therefor Marcella Dwyer, the true name of
said defendant.
The only party
which appeared in opposition to the motion is the
County
of
Nassau
. It does not oppose the application to amend the title. It does,
however, oppose the motion for summary judgment, particularly that
portion thereof which seeks an order adjudging the tax liens of the
United States
to be "superior in time and rank to that of any adverse
claim."
It contends
that the real property taxes assessed against the lots owned by the
taxpayer the entitled to priority over all the federal tax liens filed
against the property, since, under the law of the State of New York, the
former are considered "Expenses of the sale." It cites as
authority for its position Sections 1060, 1061, 1062, 1082 and 1087 of
the New York Civil Practice Act. Sections 1060, 1061 and 1062 provide
for the disposition of the proceeds of a sale in a partition action and
Section 1062 directs that the officer making the sale must pay out of
the proceeds thereof "all taxes, assessments and water rates, which
are liens upon the property sold. . . . The sums necessary to make those
payments and redemptions are deemed expenses of the sale."
(Italics mine). Sections 1082 and 1087 provide for the disposition of
the proceeds of a sale in an action to foreclose a mortgage, Section
1087 containing substantially the same language as Section 1062, supra,
respecting the payment of real estate taxes, etc.
The County
contends that the case at bar is analogous to an action to foreclose a
mortgage, and that its after-accrued taxes are "expenses of
the sale" and must be paid out of the proceeds of the sale of the
property before the tax lien of the United States may be paid.
In its brief
the County lays great stress on the case of Buffalo Savings Bank v.
Victory, 11 N. Y. 2d 31, decided by the Court of Appeals of the
State of New York on February 22, 1962. That was an action to foreclose
a mortgage which had been recorded prior to the filing of a lien by the
United States
for unpaid income taxes. The Court there held that local real estate
taxes and assessments which accrued subsequent to the filing of the
federal tax lien, but which, under New York Law (Section 1087, supra)
were superior to the mortgage debt, were entitled to payment, as
expenses of the sale, prior to the federal tax lien. It held, further,
that the latter could be paid only out of the surplus, if any, remaining
after the payment of the mortgage debt and the expenses of the sale.
The
Buffalo
case, supra, is clearly inapposite. A mortgage recorded prior to
the filing of a federal tax lien is given priority thereover under
Section 6323 of Title 26, United States Code, which provides that
". . . the lien imposed by section 6321 (lien in favor of the
Government for unpaid taxes) shall not be valid as against any
mortgagee, pledgee, purchaser, or judgment creditor until notice thereof
has been filed by the Secretary or his delegate--" (Italics and
matter in parenthesis added).
The New York
Court of Appeals reasoned that since the local taxes were superior to
the lien of the mortgage they were also superior to the federal tax
lien. It said at page 387, "Here we are faced with the true parties
in interest--the mortgagee and the Federal Government. Under
New York
law no funds are deemed surplus until the expenses of the sale, the
costs of the action and the amount of the foreclosed mortgage debt plus
interest have been fully paid. (Civ. Prac. Act, §1082). The procedure
in this State requires the officer conducting the foreclosure sale to
pay out of the proceeds all taxes, assessments and water rates which are
liens on the property, unless the judgment directs otherwise. These
payments are expenses of the sale by statute. Therefore, the
question of what, if any, financial interest the mortgagor-taxpayer had
on which the Federal Government had a lien can only be determined under
the State law after the foreclosure sale." (Italics added).
That reasoning
would appear to be inapplicable to the case at bar. This is not an
action to foreclose a mortgage. The
United States
is foreclosing its tax liens, one of which, concededly, was filed prior
to the accrual of the local taxes. The Government claims that its liens
have priority over those of the County.
The case of
the
United States
v.
New Britain
[54-1 USTC ¶9191], 347
U. S.
81, is, in my opinion, dispositive of the case at bar. It decided that
the priority of liens was to be determined by the doctrine of "the
first in time is the first in right." Mr. Justice Minton, writing
for the Court, stated the principle (at page 85) as follows: "We
believe that priority of these statutory liens is determined by another
principle of law, namely, 'the first in time is the first in right.' As
stated by Chief Justice Marshal in Rankin v. Scott, supra:
'The
principle is believed to be universal, that a prior lien gives a prior
claim, which is entitled to prior satisfaction, out of the subject it
binds, unless the lien be intrinsically defective, or be displaced by
some act of the party holding it, which shall postpone him in a Court of
law or equity to a subsequent claimant.' 12 Wheat., at 179.
This
principle is widely accepted and applied in the absence of legislation
to the contrary. 33 Am. Jur., Liens, §33; 53 C. J. S., Liens, §10b. We
think that Congress had this cardinal rule in mind when it enacted §3670,
a schedule of priority not being set forth therein. Thus, the
priority of each statutory lien contested here must depend on the time
it attached to the property in question and became choate."
(Italics added.)
Applying the
doctrine of "the first in time is the first in right" to the
case at bar, I find that the tax lien filed by the United States in the
office of the County Clerk of Nassau County on November 20, 1953 is
prior to the liens of School and Town taxes for 1957-1958, 1958,
1960-1961 and 1961 which accrued against the lots owned by the taxpayer
and is entitled to priority thereover.
As to the tax
lien filed by the
United States
on
October 6, 1961
, however, the local taxes, having accrued prior thereto, are entitled
to priority over that federal tax lien.
The motion is
granted as indicated. Settle order on notice.
