Notice of Tax Lien Not Filed

---

 

[2000-1 USTC ¶50,482] In re Ronald Joseph Clark and Lucy Y. Clark, Debtors. Marie E. Henkel, Trustee, Plaintiff v. Florida Department of Revenue, United States of America, William R. Decker, Inc., Whispering Oaks Realty Group, Ltd., and NCNB National Bank of Florida, Defendants

U.S. Bankruptcy Court, Mid. Dist. Fla., Orlando Div., 97-00253-6B7, 4/13/2000

[Code Sec. 6323 ]

Tax liens: Priority: State tax warrant: Notice not required: Judgment lien creditor.--

A federal tax lien against married debtors for the husband's unpaid employment tax liabilities was filed before a state ( Florida ) tax warrant became a lien and, thus, had priority over the state lien. No applicable exception required the IRS to file a notice of lien in order to have priority over the state lien. The state, as the tax warrant holder, was not a purchaser, holder of a security interest, or mechanic's lienor. The state also was not a judgment lien creditor since the tax warrant was not a judgment obtained in a court, but rather a statutory

ORDER GRANTING MOTION BY UNITED STATES FOR SUMMARY JUDGMENT

BRISKMAN, Bankruptcy Judge:

This cause came on for hearing on Wednesday, March 8, 2000 , at 1:00 p.m. , upon the Motion by the Defendant United States for Summary Judgment. Based on the arguments presented and the memoranda filed, the Court makes the following Findings of Fact and Conclusions of Law:

FINDINGS OF FACT

1. Ronald Joseph Clark and Lucy Y. Clark initially filed for relief under Chapter 11 of the Bankruptcy Code on January 10, 1997 , and subsequently converted their case to Chapter 7. Marie E. Henkel, Plaintiff, was appointed as and continues to serve as trustee.

2. On the petition date, Ronald Joseph Clark owned real property located in Orange County , Florida , together with a Quonset hut constructed thereon, located at 202 E. 7th Street , Bithlo , Florida .

3. The Trustee sold the property pursuant to an Order Granting Amended Motion to Sell Property of the Estate, entered by this Court on September 29, 1997 . The Order authorized the Trustee to pay off the recorded mortgages, specified property taxes, and the costs of sale. The Order directed that the putative liens of the Defendants were transferred to the remaining proceeds of the sale, which are held by the Trustee in a segregated interest-bearing account pending a determination of the extent, validity and priority of the liens. The remaining proceeds as of September 1, 1999 totaled $20,796.08 ("Proceeds").

4. Ronald Joseph Clark is indebted to the United States for unpaid employment taxes for the third quarter of 1993.

5. Although the United States issued notice and made demand for payment as required by law, the Debtor's tax liability remained unpaid.

6. This liability was assessed on October 3, 1994 .

7. On March 9, 1995 , the United States filed a Notice of Federal Tax Lien for this liability with the County Comptroller , Orange County , Orlando Florida . The Comptroller recorded this Notice in Official Records Book 4864, Page 2861.

8. The amount of the unpaid tax liability secured by the lien, as of February 14, 2000 , was $22,819.44, including interest and penalties to that date.

9. The Florida Department of Revenue filed two tax warrants with the Clerk of the Orange County Circuit Court against the Debtor, Ronald Joseph Clark.

10. The first warrant, #01942660016 for $2,577.00, was recorded with the Orange County Comptroller on October 7, 1994, in Official Records Book 4806, Page 1488.

11. The second warrant, #01963000267 for $15,951.86, was recorded with the Orange County Comptroller on January 8, 1997, in Official Records Book 5182, Page 3038.

12. A default was entered against defendant William R. Decker, Inc. on December 17, 1999 in this adversary proceeding.

13. A default was entered against defendant Whispering Oaks Realty Group, Ltd. on March 2, 2000 in this adversary proceeding.

14. Defendant NCNB National Bank of Florida has stipulated that it has no interest in the proceeds of this case, as its judgment is not against the Debtor. Consequently, this Court will dismiss Defendant NCNB from this adversary proceeding by separate order.

CONCLUSIONS OF LAW

1. When a person liable to pay a tax neglects or refuses to pay it after a demand for payment, Internal Revenue Code Section 6321 imposes a lien upon all property of the delinquent taxpayer. 26 U.S.C. §6321.

2. Section 6322 specifies that the lien arises when the tax is assessed. 26 U.S.C. §6322.

3. Once the tax lien arises, federal law governs the priority of competing liens. Griswold v. United States [95-2 USTC ¶50,419], 59 F.3d 1571, 1575 (11th Cir. 1995); see also Aquilino v. United States [60-2 USTC ¶9538], 363 U.S. 509, 513-14 (1960).

4. The basic rule in determining priority of liens is that "the first in time is the first in right." United States v. McDermott [93-1 USTC ¶50,164], 507 U.S. 447, 449 (1993); United States v. City of New Britain [54-1 USTC ¶9191], 347 U.S. 81, 85 (1954); Central Bank v. United States [93-2 USTC ¶50,586], 833 F.Supp. 892, 895 (M.D. Fla. 1993).

5. The Florida Department of Revenue is empowered to issue a warrant for delinquent taxes and to mail the warrant to the clerk of the county circuit court where any property of the taxpayer is located. Fla. Stat. §212.15(4).

6. Upon receipt of the warrant, the clerk must record it, whereupon the amount of the warrant becomes a lien on any real or personal property of the taxpayer in the same manner as a recorded judgment. Id.

7. The Federal Tax Lien against Ronald Joseph Clark's property arose on October 3, 1994 , the date the tax was assessed. 26 U.S.C. §6322.

8. The lien created by Florida 's first tax warrant did not arise until October 7, 1994 , the date it was recorded.

9. Thus the Federal Tax Lien arose four days before the amount of Florida 's tax warrant became a lien.

10. The Federal Tax Lien therefore has priority over the lien created by Florida 's tax warrant.

11. None of the exceptions of 26 U.S.C. §6323 that would require the United States to first file a Notice of Federal Tax Lien in order to have priority over the lien created by Florida's tax warrants apply because the state of Florida, as a holder of a tax warrant, is not a purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor.

12. The State of Florida is not a "judgment lien creditor" under section 6323(a), because a "judgment lien creditor" is a person who has obtained a valid judgment in a court of record and competent jurisdiction, to recover specifically designated property or a certain sum of money. Litton Indus. Automation Sys., Inc. v. Nationwide Power Corp. [97-1 USTC ¶50,236], 106 F.3d 366, 373 (11th Cir. 1997) (quoting Treas. Reg. §301.6323(h)-1(g)). A tax warrant, however, is not a judgment obtained in a court, but rather is a statutory remedy to collect delinquent taxes.

Based on these Findings of Fact and Conclusions of Law, it is hereby ORDERED, ADJUDGED and DECREED as follows:

That the Motion by United States for Summary Judgment is hereby GRANTED;

That the Federal Tax Lien that arose on October 3, 1994 has priority over Florida 's tax warrants;

That Defendant William R. Decker, Inc. has no claim to the Proceeds, and has been defaulted;

That Defendant Whispering Oaks Realty Group, Ltd. has no claim to the Proceeds, and has been defaulted;

That Defendant NCNB National Bank of Florida has no claim to the Proceeds, and will be dismissed by separate Order;

That the Proceeds remain in their segregated account and be distributed at closing in accordance with 11 U.S.C. §724(b); and

That a separate judgment conforming with this order shall be entered pursuant to Bankruptcy Rule 9021.

DONE and ORDERED.

FINAL JUDGMENT

This action came on for hearing before the Court, Honorable Arthur B. Briskman, Bankruptcy Judge, presiding, and the issues having been duly heard and a decision having been duly rendered,

It is Ordered and Adjudged

1. That the United States , by virtue of its Federal Tax Lien arising on October 3, 1994 , is entitled to priority to the Proceeds over the State of Florida 's tax warrants;

2. That Defendant William R. Decker, Inc. has no claim to the Proceeds, and has been defaulted;

3. That Defendant Whispering Oaks Realty Group, Ltd. has no claim to the Proceeds, and has been defaulted;

4. That Defendant NCNB National Bank of Florida has no claim to the Proceeds; and

5. That the Proceeds remain in their segregated account and be distributed at closing in accordance with this Final Judgment and 11 U.S.C. §724(b)

 

 

[64-1 USTC ¶9292]United States of America, Plaintiff-Appellee v. Harold Trilling; the Cosmopolitan National Bank of Chicago; Beatric Wyman; Jeannette Jaffe, Defendants, and Sara Trilling, Individually and as Executrix of the Estate of Gertrude Abramovitz, Defendant-Appellant

(CA-7), U. S. Court of Appeals, 7th Circuit, No. 14306, 328 F2d 699, 3/3/64, Affirming an unreported District Court decision

[1954 Code Sec. 6321]

Tax lien: Property purchased in joint tenancy: Presumption of gift under state law.--There was substantial evidence to support the District Court's finding that a taxpayer owned an undivided one-half beneficial interest in real property where the only evidence to the contrary was the uncorroborated testimony of the taxpayer and his wife that, although the property was purchased in joint tenancy, the wife paid the full purchase price. The rule under the governing state law established a presumption of a gift when property is taken in the joint names of husband and wife even though the consideration is furnished by only one of the spouses.

[1954 Code Sec. 6323]

Tax lien: Enforcement: Notice requirement.--Notice of a tax lien is not required with respect to an individual whose interest in the property is not that of a martgagee, pledgee, purchaser, or judgment creditor.

[1954 Code Secs. 6502 and 6659(a)]

Statute of limitation: Collection of penalties and interest: Penalties as part of tax.--A suit involving penalties and interest is timely where filed within six years after assessment. Since penalties are considered as part of the tax under the Internal Revenue Code, the general provisions of 28 U. S. C. A. 2462 establishing a five-year limitation with respect to actions for the enforcement of civil pealties are not applicable.

[1954 Code Sec. 7403]

Jurisdiction: Tax liens: Sale of property held in joint tenancy.--Once the state law has been applied to ascertain the taxpayer's state-created property interests--to govern the determination of whether the taxpayer has "property" or an "interest in property" to which a tax lien attaches--the property may be subjected to the discharge of the tax liability even though it is held in joint tenancy with another person.

Louis F. Oberdorfer, Assistant Attorney General, Lee A. Jackson, Department of Justice, Washington, D. C. 20530, Frank E. McDonald, John Peter Lulinski, Assistant United States Attorneys, Chicago, Ill., for plaintiff-appellee. Rob ert Jay Nye, 315 Plymouth Ct. , Ben Copple, 111 W. Washington St. , Chicago , Ill. , for defendant-appellant.

Before HASTINGS, Chief Judge, and DUFFY and CASTLE, Circuit Judges.

[Nature of Appeal]

CASTLE, Circuit Judge:

The defendant-appellant, Sara Trilling, individually and as Executrix of the Estate of Gertrude Abramovitz, prosecutes this appeal from a judgment order of the District Court foreclosing a federal tax lien asserted by the United States in connection with income tax owed by appellant's husband, Harold Trilling, and authorizing the sale of certain real estate in which the taxpayer is adjudicated to have an undivided one-half interest, and the payment of one-half the proceeds, after payment of fees and expenses, to the United States to the extent of the lien.

The record discloses that the real estate in question, an industrial property referred to as 3541-61 South Normal Avenue , Chicago , Illinois , was acquired by Harold and Sara Trilling in December, 1946. Title was taken in joint tenancy. An assessment of back taxes for the years 1942-47 in the amount of $107,375.11, including penalties of $16,777.44, was made against taxpayer Harold Trilling on May 21, 1954 . On that date, pursuant to the provisions of 26 U. S. C. A. §§ 6321 and 6322, a lien attached against Harold Trilling's property and rights to property. In December, 1954, the Trillings conveyed their respective interests in the Normal Avenue property into an Illinois land trust, each retaining a 50% beneficial interest therein. In August, 1955, the taxpayer conveyed his interest in the land trust to appellant's mother, Gertrude Abramovitz, who died leaving a will bequeathing such interest to appellant.

The Government instituted suit in the District Court on May 20, 1960, seeking to reduce its assessment to judgment and asking for a decree allowing it to foreclose its lien against defendant Harold Trilling's interest in the Normal Avenue property. ¹ A judgment against defendant Harold Trilling on the asserted tax liability ($163,212.17), and declaring the Government's lien to be valid and subsisting, was entered on the Government's motion for partial summary judgment. The cause proceeded to trial on the issues of the existence and extent of the taxpayer's interest in the property sought to be subjected to the lien. The District Court, after making and entering findings of fact and conclusions of law, entered the judgment order from which appellant has appealed.

The main contested issues on appeal are:

(1) Is there substantial evidence to support the District Court's finding and conclusion that the taxpayer owned an undivided one-half beneficial interest in the Normal Avenue property or does the record require the conclusion that he held his share of the joint tenancy in a resulting trust for his wife, the appellant?

(2) Whether the enforcement of the lien is barred by a five-year statutory limitation period in so far as it includes penalties and interest on penalties.

(3) Whether enforcement of the lien against the appellant is precluded because of failure to file notice thereof.

(4) Whether the court erred in authorizing a sale of the property rather than the taxpayer's interest therein, and in subjecting appellant's interest to an equal share of the expenses of the sale.

[Property Held in Joint Tenancy]

Appellant contends that the record requires a conclusion that the taxpayer held his share of the joint tenancy in a resulting trust for her, that she is the owner of the entire beneficial interest in the property, and that the taxpayer was possessed of no beneficial interest to which the lien attached. In this connection the record does disclose testimony of the taxpayer that he did not use any of his money in the purchase of the property. ² And the appellant testified that she furnished the purchase price without contribution from her husband. But this testimony was not corroborated in any manner and was subject to appraisal and evaluation by the District Court in the light of the circumstances reflected by the record and reasonable inferences which may be drawn from what the record does reveal as to other pertinent factors including the relative status of each of the Trillings from the standpoint of earnings and income. Our examination of the record convinces us that when so viewed the weight to be accorded the uncorroborated testimony of the Trillings was solely for resolution of the District Court on the basis of credibility. And, the court's factual findings constitute an implicit rejection of their testimony as to who supplied the money used to make the purchase.

Moreover, the law of Illinois governs the determination of whether taxpayer owns a beneficial interest in the property (Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509, 512-514; United States v. Bess [58-2 USTC ¶9595], 357 U. S. 51, 55) and in Nickoloff v. Nickoloff, 384 Ill. 377, 51 N. E. 2d 565, the governing principle is stated as follows (p. 383):

"The rule is also settled that when property is taken in the joint names of husband and wife, even where the consideration is all furnished by one of them, there is a presumption of a gift from the one furnishing the consideration. Clear and convincing evidence is required to overcome this presumption and establish a resulting trust. [Citations.]"

Expression and application of this principle is found in Spina v. Spina, 372 Ill. 50, 56-57, 22 N. E. 2d 687, 690; Walker v. Walker, 369 Ill. 627, 631, 17 N. E. 2d 567, 569; and in Kartun v. Kartun, 347 Ill. 510, 518, 180 N. E. 423, 426, which admonishes that "[t]he presumption of gift is not to be frittered away by mere refinement."

Measured by the controlling principle established by the pertinent Illinois decisions the record in the instant case does not furnish the clear and convincing evidence requisite to overcome the presumption of a gift and establish a resulting trust. Appellant was unable to state with any certainty whether other real properties she stated were sold to provide the original purchase payment (and later to pay off the mortgage) on the Normal Avenue property were solely owned by her or were in joint tenancy with her husband; the reason advanced as to why the title was taken jointly was so that taxpayer could "manage" the property although it is admitted he managed other property without holding title jointly; and appellant testified on deposition that a right of survivorship was intended ³ in connection with the Normal Avenue property. We conclude that the record substantially supports the District Court's finding and conclusion that taxpayer owns an undivided one-half interest in the property.

[Action Not Barred]

The government filed its suit one day before the expiration of six years from the date of the assessment. The suit was filed within the period prescribed by 26 U. S. C. A. §6502(2)(1)--within six years after the assessment. And, as penalties are considered of the tax (26 U. S. C. A. §6659(a)) ⁴ the action, in so far as the collection and enforcement of penalties and interest on penalties are concerned, was not barred by limitation. Appellant's reliance on 28 U. S. C. A. §2462, a general provision establishing a five year limitation with respect to actions for the enforcement of civil penalties "[e]xcept as otherwise provided by Act of Congress", is misplaced. We find it unnecessary to consider the respective contentions of the Government and the appellant with respect to the standing of the appellant to assert a statute of limitations defense and as to whether her failure to affirmatively plead such defense in the District Court precludes her from urging it on appeal.

[Notice Not Required]

We perceive no merit in appellant's contention with respect to the application of the notice requirements of Section 3672 of the 1939 Internal Revenue Code and Section 6323 of the 1954 Code. ⁵ Appellant's interest is not that of a mortgagee, pledgee, purchaser or judgment creditor. We have considered, but reject as unpersuasive, the argument she presents based on the taxpayer's transfer of his interest in the land trust to appellant's mother. It is but a reassertion of the resulting trust theory.

[ Sale Permitted]

Appellant's final contention is that 26 U. S. C. A. §7403 does not empower the District Court to order a sale of the entire property, including appellant's admitted joint tenancy interest, or to charge appellant's interest with any of the fees, costs or expenses incident to the sale. The Government's complaint contained a prayer that the Normal Avenue real estate be sold and one-half of the proceeds be applied in satisfaction of the lien. From the record it appears appellant raised no question as to the scope of the relief sought either by any responsive pleading, during the course of the trial, or by post-judgment motion; and there is no evidence which suggests any impropriety in the sale of the entire property. Apart from the question as to whether appellant's belated protest should be entertained on appeal (Cf. Duignan v. United States, 274 U. S. 195, 199-200) we are of the opinion that appellant's position is without merit. We recognize that Folsom v. United States , 5 Cir., [62-2 USTC ¶9648] 306 F. 2d 361, relied upon by appellant, expresses a contrary view. But in our judgment Folsom overlooks the fact that in §7403 Congress has expressly authorized the district court to subject "any property" in which the delinquent taxpayer "has any right, title, or interest" to the payment of "such tax or liability"; has required that "all persons" claiming any interest "in the property involved" be made parties to the proceeding; and has empowered the court to order a sale "of such property" and direct distribution of the proceeds of such sale according to the "interest of the parties and of the United States". The express language of the statute negates any design or intent on the part of Congress to limit the reach of the statute to the "interest" of the taxpayer as distinguished from the "property" in which he has such "interest". This being so we are of the view that a proper recognition of the teachings of Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509 and United States v. Bess [58-2 USTC ¶9595], 357 U. S. 51, requires the conclusion that once the state law has been applied to ascertain the taxpayer's state-created property interests--to govern the determination of whether the taxpayer has "property" or an "interest in property" to which the lien attaches--we enter the province of federal law in subjecting the property involved to the discharge of the tax liability. As Mr. Chief Justice Warren had occasion to observe in Aquilino (363 U. S. 509 at 514): "This approach strikes a proper balance between the legitimate and traditional interest which the State has in creating and defining the property interest of its citizens, and the necessity for a uniform admin istration of the federal revenue statutes."

And, where as here, "consequences, federally defined" have been applied "to rights created under state law" (Cf. United States v. Bess [58-2 USTC ¶9595], 357 U. S. 51, 55) we perceive no inquity or error in the court's assessment of the costs and expenses of the sale according to the respective interests of the parties in the property.

The judgment order of the District Court is affirmed.

AFFIRMED.

¹ Defendant Harold Trilling neither admitted nor denied the allegations of the Government's complaint concerning his interest as a joint tenant with his wife in the property but claimed no independent knowledge as to his ownership of an interest in the real estate. The Cosmopolitan National Bank, Beatrice Wyman, and Jeannette Jaffe, also named as defendants, disclaimed interest in the subject matter of the suit.

² The purchase price for the Normal Avenue property was $50,000. $25,000 was paid at the time of purchase and the remainder secured by a mortgage. Testimony indicates the down payment money came mostly from the proceeds of a sale in 1946 of property at 43rd Street and Stewart Avenue in Chicago , and that the purchases money mortgage was discharged out of the proceeds of a 1947 sale of other property at 44th and LaSalle St. , Chicago .

³ Cf. Spina v. Spina, 372 Ill. 50, 58.

⁴ No showing is made that the penalties involved are of the class excluded by §6659(b) from the scope of §6659(a).

⁵ 26 U. S. C. A. §6323.

 

 

[57-1 USTC ¶9583] United States of America , Plaintiff v. Ethel J. Ralph, et al., Defendants

U. S. District Court, So. Dist. Calif. , Cent. Div., Civil No. 17029-TC, 3/18/57

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

Tax lien: Notice of lien not filed.--The Commissioner was allowed to offset against the proceeds of a tax sale which were deposited in a special account the amounts of four assessments, although no notice of tax lien covering three of the assessments had been recorded. Other claimants to the fund were a judgment creditor of the taxpayer, the taxpayer's receiver, the holder of chattel mortgages, and the State of California .

Findings of Fact and Conclusions of Law

CLARKE, District Judge:

The above-entitled cause came on regularly for trial on Thursday, January 3, 1957 before the Honorable THURMOND CLARKE, United States District Judge, in the United States District Court, Southern District of California, Central Division, Courtroom Number 4, 312 North Spring Street , Los Angeles , California . The plaintiff appeared by its attorney Edward R. McHale, Esq., Chief of the Tax Division of the office of the United States Attorney for said district; defendant State of California appeared by its attorney, Dan Kaufmann, Esq., Deputy Attorney General; defendant Security-First National Bank of Los Angeles appeared by its attorney, Edwin H. Franzen, Esq., of Sheppard, Mullin, Richter, Balthis & Hampton; defendants Ethel J. Ralph, Mel Anderson, and R. E. Allen, Receiver, appeared by their attorney, Rob ert P. Schifferman, Esq., of Schifferman and Schifferman; defendant Division of Labor Law Enforcement, Department of Industrial Relations, State of California appeared by its attorney, Pauline Nightingale. No other parties or their attorneys appeared upon said trial. Stipulations of Fact having been entered into, and oral and documentary evidence having been offered and received by the Court, and the Court having heard the arguments of counsel for the various parties and having studied all of the Memoranda of Points and Authorities filed by the various parties and being fully advised in the premises, the Court now makes the following

Findings of Fact

I. Admitted Facts

The Court makes no Findings of Fact with respect to facts admitted by stipulations made upon said trial and filed with the Clerk of the Court, and finds only upon disputed issues of fact.

II. Complaint

The Court finds that the plaintiff at the time of filing this action held the sum of $3,454.86, resulting from the sale of the assets of the Mel Anderson Mfg. Co., Inc., a California corporation, which said sum has been deposited in the Registry of this Court pending a determination by this Court of the person or persons lawfully entitled thereto.

III. Amended Cross-Claim or Counterclaim of Defendant Security-First National Bank of Los Angeles

A. The Court finds that the allegations relating to certain liens in paragraph V, page 7, line 28 to page 8, line 4 of said pleading, are untrue.

B. The Court finds that the allegations in paragraph VII are untrue.

C. The Court finds that the allegations in paragraph VIII of said pleading are untrue.

D. The Court finds that the allegations in paragraph XIV, pages 4-5 of the Amended Answer to said pleading filed by defendants Ethel J. Ralph, Mel Anderson and R. E. Allen, Receiver, are true.

E. The Court finds that said amended Cross-Claim or Counterclaim is barred by the adjudications in Los Angeles County Superior Court actions numbers 624972 and 626143.

Answer of Plaintiff to Amended Cross-Claim or Counterclaim of Defendant Security-First National Bank of Los Angeles

A. The Court finds that the allegations of the first defense are untrue.

B. The Court finds that the allegations of the second defense are untrue.

C. The Court finds that the allegations of the third defense are true.

IV. Cross-Claim of Defendant State of California

A. The Court finds that the allegations in Paragraph V of said pleading with respect to the provisions of certain statutes of the State of California do not set forth all of the provisions of the statutes therein discussed.

B. The Court finds that the allegations in Paragraph VII of said pleading are untrue.

Answer of Defendant State of California

A. The Court finds that the allegations of Paragraphs VII and VIII of said pleading with respect to the provisions of certain statutes of the State of California do not set forth all of the provisions of the statutes therein discussed.

B. The Court finds that the allegations in Paragraph X of said pleading are untrue.

V. Answer of Defendant Division of Labor Law Enforcement, Department of Industrial Relations, State of California

The Court finds that the allegations in Paragraph VI of said pleading are untrue.

VI. Answer of Defendant Ethel J. Ralph

A. The Court finds that the allegations in Paragraph VII, page 3 of said pleading are true.

B. The Court finds that the allegations of Paragraph III, page 4 of said pleading are true.

VII. Answer of Defendant Mel Anderson

The Court finds that the allegations in Paragraph V, page 3 of said pleading are true.

VIII. Answer of Defendant R. E. Allen, Receiver

The Court finds that the allegations in Paragraph VII, page 3 of said pleading are true.

Counterclaim of Defendant R. E. Allen, Receiver

A. The Court finds that the allegations of Paragraph II of said pleading are partly true and partly untrue, in that the Court finds that Rob ert A. Riddell, District Director of Internal Revenue, realized an excess of $7,153.84 upon the tax sale of the assets of the Mel Anderson Mfg. Co., Inc., a California corporation, which was deposited by him in his special account No. 891-499. The Court further finds that on July 28, 1954 , an offset against said excess sum in the amount of $2,187.01 was ordered made by the Commissioner of Internal Revenue. The Court further finds that on July 28, 1954 a further offset against said excess sum in the amount of $66.91 was authorized by the Commissioner of Internal Revenue. The Court further finds that on July 28, 1954 a further offset against said excess sum in the amount of $766.79 was authorized by the Commissioner of Internal Revenue. The Court further finds that on November 19, 1953 a further offset against said excess sum in the amount of $678.27 was authorized by the Commissioner of Internal Revenue. The Court further finds that by reason of said offsets the total balance of said excess sum in the hands of the said District Director of Internal Revenue at the time of filing the within action was the amount of $3,454.86, which has been deposited in the Registry of this Court by the plaintiff. The Court further finds that with respect to all of such offsets except the one for $678.27, no notice of tax lien covering any of the assessments representing such offsets was ever recorded as provided in Section 3672, Internal Revenue Code of 1939, as amended.

B. The Court finds that the allegations of Paragraph III of said pleading are untrue.

Reply of the Plaintiff to the Counterclaim of R. E. Allen, Receiver

A. The Court finds that the allegations in the First Defense are untrue.

B. The Court finds that the allegations in the Second Defense are untrue.

C. The Court finds that the allegations in the Third Defense are untrue.

IX. Cross-Claim of Defendants Ethel J. Ralph, Mel Anderson, and R. E. Allen, Receiver

The Court finds that all of the allegations of Paragraph XVIII, pages 4 to 5 of said pleading, are true, except that defendant R. E. Allen, Receiver, is entitled to be paid only the entire amount of the excess fund deposited in Court, to wit: $3,454.86, and not $6,475.57 as therein alleged.

X. Answers and Other Pleadings of All Remaining Defendants in the Above-Entitled Action

Except as herein expressly found to be true, the Court finds that each and every allegation in each and every answer or other pleading filed in the above-entitled action by any of the defendants therein other than the defendants appearing upon the trial of the action, is untrue.

XI. Pleadings of Parties Appearing Upon Trial of the Action

Except as herein expressly found to be true, or as admitted by stipulations made upon the trial of the cause, the Court finds that each and every allegation in each and every Answer or other pleading filed in the above-entitled action by any of the parties thereto is untrue.

From the foregoing Findings of Fact, together with the facts admitted in the Stipulations of Fact which have been entered into by the parties to the above cause, the Court draws the following

Conclusions of Law

I. Defendant Ethel J. Ralph, judgment creditor of the taxpayer Mel Anderson Mfg. Co., Inc., since October 14, 1953, acquired valid attachment and execution liens under the laws of the State of California prior to November of 1953 upon the excess fund involved in this action, which said liens have preference over the claims of all of the remaining defendants in said action.

II. Defendants Ethel J. Ralph and Mel Anderson, as the real parties in interest, acquired a right to the excess fund involved in this action by reason of the execution pursuant to court order by the Mel Anderson Mfg. Co., Inc., a California corporation, of a written assignment on May 13, 1954, in their favor to R. E. Allen, Receiver, of all of the said taxpayer's right, title and interest in and to said fund in its entirety. Subject to the prior attachment and execution liens upon said excess fund existing in favor of defendant Ethel J. Ralph, said assignment has preference over the claims of all of the remaining defendants in said action.

III. Defendant State of California has no lien or preferential claim whatsoever upon the excess fund involved in this action.

IV. Defendant Security-First National Bank of Los Angeles is unable to trace the proceeds of the sale of the two vehicles of which it was chattel mortgagee into the excess fund involved in this action, said proceeds having been applied on account of taxes owing by the taxpayer-mortgagor. Defendant Security-First National Bank of Los Angeles has no lien or preferential claim whatsoever upon the excess fund involved in this action. Furthermore, the claims of said defendant are barred by the adjudications in Los Angeles County Superior Court actions numbers 624,972 and 626,143.

V. Defendant Division of Labor Law Enforcement, Department of Industrial Relations, State of California has no lien or preferential claim whatsoever upon the excess fund involved in this action.

VI. None of the remaining defendants in said action has any lien or claim whatsoever upon the excess fund involved therein. No other person or entity not a party to the above action has any lien or claim whatsoever upon said fund or any portion thereof.

VII. Defendants R. E. Allen, Receiver and Security-First National Bank of Los Angeles are entitled to no relief upon their counterclaims against the plaintiff.

VIII. None of the parties to said action should be awarded his costs of suit as against any of the other parties.

IX. Defendants Ethel J. Ralph and Mel Anderson as hereinabove set forth are entitled to the total excess fund now held by the Clerk of this Court, to wit: $3,454.86, to the exclusion of the remaining defendants in said action. To that end, Judgment should be entered in the above action awarding them said excess fund in its entirety, and directing payment by the Clerk of this Court of the sum of $3,454.86 to R. E. Allen, Receiver, for their account, the ultimate distribution of said amount to be determined by the Superior Court of the State of California, In and For The County of Los Angeles, as between said two parties, in accordance with the Findings of Fact and Conclusions of Law of this Court.

LET JUDGMENT BE ENTERED HEREIN ACCORDINGLY.

 

 

[72-2 USTC ¶9496]City of Vermillion, South Dakota, a municipal corporation, Plaintiff v. Stan Houston Equipment Co., a corporation; Egger Steel Company, a corporation; Ludey Williams; V. O. Holter, J. B. Montgomery and E. B. Odenbrett, partners doing business as Vermillion Lien Insurance Agency; George S. Christensen; Joe W. Cadwell, Trustee in Bankruptcy; National Bank of South Dakota, Sioux Falls, Vermillion, South Dakota, a corporation; Laverne Odegaard; The Employment Security Department of the State of South Dakota; Fullerton Lumber Company, a corporation; and Treasury Department of the United States, Internal Revenue Service, Defendants

U. S. District Court, Dist. of S. Dak., So. Div., Civ. 70-115S, 4/18/72

[Code Secs. 6321 and 6323]

Liens for taxes: Validity: Priority: Bankruptcy.--The tax lien of the United States was valid as against the trustee in bankruptcy as a judgment lien creditor only for the amount stated in the lien notice given prior to the date taxpayer's bankruptcy petition was filed. Priority was not accorded where notices of levy were filed since such notices were not sufficient to serve as notices of liens.

Martin Weeks, Bogue & Weeks, Nat'l Bank Bldg., Vermillion, S. Dak., for plaintiff. Everett A. Bogue, Bogue & Weeks, Nat'l Bank Bldg., Vermillion, S. Dak., for Stan Houston Equipment Co., Holter, Montgomery, Odenbrett, Christensen, and Nat'l Bank of S. Dak.; Deming Smith, Davenport, Evans, Hurwitz & Smith, Nat'l Reserve Bldg., Sioux Falls, S. Dak., for Egger Steel Co.; Lee McCahren, Vermillion, S. Dak., for Ludey Williams; James W. Donahoe, Vermillion, S. Dak., for Fullerton Lumber Co.; Joe W. Cadwell, 125 W. 10th St., Sioux Falls, S. Dak.; R. D. Hurd, David R. Gienapp, Assistant United States Attorneys, Sioux Falls, S. Dak., for Treasury Dept. of U. S., for defendants.

Memorandum Decision

NICHOL, District Judge:

The City of Vermillion (hereinafter referred to as City) began a declaratory judgment action against the defendants in the First Judicial Circuit of the State of South Dakota on July 30, 1970 . The action sought to have the Court determine to whom the City should pay the proceeds of a public improvement contract between the City and one Laverne Odegaard, d/b/a Odegaard Construction of Vermillion (hereinafter referred to as Contractor), who has filed a bankruptcy petition. The United States Attorney on behalf of the Internal Revenue Service (hereinafter referred to as I. R. S.) removed the case to this Court under 28 U. S. C. A. Sec. 1442.

The Contractor and the City entered into a public improvement contract for the construction of tennis courts on September 10, 1969 . On October 15, 1969 , the Contractor assigned his interest in the proceeds of that contract to the National Bank of South Dakota , Vermillion Branch, (hereinafter referred to as Bank) to secure any present debts owed to or future advances from the Bank. This assignment was accepted by the City on October 17, 1969, and filed with the Clay County ¹ Register of Deeds on November 28, 1969.

The I. R. S. served on the City auditor a notice of levy against the proceeds of the contract between the City and the Contractor for $3,700.19 on December 1, 1969 . On December 15, 1969 , the I. R. S. filed with the Clay County Register of Deeds a notice of tax lien for $3,675.91 upon all the property and rights to property of the Contractor.

On December 30, 1969 , Fullerton Lumber Company garnished the contract proceeds in the hands of the City for debts owing by the Contractor which were not related to the public improvement contract. This garnishment was dismissed with prejudice by the state circuit court on November 19, 1970 .

Public improvement liens for services and materials were filed with the City auditor as follows: Ludey Williams, d/b/a Ludey's Ready Mix Service, January 7, 1970-$6,250.02; Vermillion Lien Insurance Agency, January 7, 1970--$435.40 (now claiming only $272.40); George S. Christensen, January 7, 1970-$748.28; Egger Steel Company, January 8, 1970-$6,046.50; Stan Houston Equipment Company, January 19, 1970--$303.67; and the National Bank of South Dakota, August 6, 1970-$2,596.47.

The Contractor filed a bankruptcy petition on January 15, 1970 . On February 12, 1970 , the I. R. S. released its levy of December 1, 1969 . The I. R. S. served a new notice of levy on May 12, 1970 , against money owed the Contractor by the City, for $7,107.06. Final demand was made upon the City by the I. R. S. on July 23, 1970 .

The City accepted the tennis courts on July 20, 1970 , at which time it owed the Contractor $22,497.10 for work done. The City has paid $19,654.22 to one of the defendants, the National Bank of South Dakota , Vermillion Branch, to be held, without interest, in trust for those creditors (defendants) this court finds have priority. The City has withheld an additional $2,842.88 owing under the contract. The City claims this sum to be a setoff in the following amounts: services rendered to the Contractor not related to the public improvement contract--$137.32; a debt owed by the Contractor to Ludey Williams as a subcontractor on work done for the City not related to the contract here in question--$1,350.06; money paid to other contractors to complete the tennis courts--$1,355.50.

The Employment Security Department of the state of South Dakota claims that the Contractor owes $89.44 in unpaid taxes which it is now demanding be paid from the Contract proceeds.

Since an agency of the United States , the I. R. S., is a party to this action, federal law as to priority of claims must govern. United States v. Equitable Life Assurance Society of the United States, [66-1 USTC ¶9444] 384 U. S. 323, 331 (1966). The applicable federal law is 26 U. S. C. A. 6323(a) & (h). Under that section we must look to state law in determining if a party is entitled to priority as a holder of a security interest, a mechanic's lienor or a judgment lien creditor. State law also applies in determining property ownership. Aquilino v. United States, [60-2 USTC ¶9538], 363 U. S. 509, 514 (1960).

Mechanics Lienors

Statutory liens are excepted from the provisions of the Uniform Commercial Code (S. D. C. L. Ch. 57 (1967)) by S. D. C. L. Sec. 57-35-3 (1967) (U. C. C. Sec. 9-102(2)). Therefore, S. D. C. L. Ch. 5-22 (1967) granting public improvement liens to certain suppliers is applicable.

Egger Steel Company met all of the requirements of S. D. C. L. Ch. 5-22 (1967) and was granted summary judgment on June 25, 1971 .

A public improvement lien has no validity unless an "action to enforce" it is commenced within 30 days from the acceptance of the work for which the lien is claimed. S. D. C. L. Sec. 5-22-7 (1967). The public body in control of money due or owing under a public improvement contract can commence an action to "determine" such liens before paying any claimant. S. D. C. L. Sec. 5-22-4 (1967). That section also allows "(a)ny person claiming a lien, if he be a defendant, (to) set forth such lien by answer." However, if the lien claimant chooses to enforce his lien by answer, he must answer within the 30 days provided by S. D. C. L. Sec. 5-22-7 (1967).

The City accepted the work of the Contractor on July 20, 1970 . Stan Houston's only action to enforce was on April 23, 1971 , when it filed its answer. Ludey Williams' only action to enforce was on April 22, 1971 , when he filed his answer. George Christensen's only action to enforce was on August 31, 1970 , when he filed his answer. Since no action was taken by these defendants within 30 days after acceptance of the work by the City, any liens which they may have had were discharged by virtue of S. D. C. L. Sec. 5-22-8(2) (1967).

The Vermillion Lien Insurance Agency claims a lien for the premium on the Contractor's performance bond and liability insurance. This defendant is not a person within S. D. C. L. Sec. 5-22-1 (1967) who furnished "skill, labor, materials, machinery, or supplies, services, or equipment, in connection with the carrying on of any work of construction, alteration, or repair of any public improvement. . . ."

In addition the Vermillion Lien Insurance Agency did not comply with the 30 day provision of S. D. C. L. Secs. 5-22-4 & 7 (1967) since the only action to enforce the lien was taken by answer on August 31, 1970 . Therefore, any lien which it may have had was discharged by virtue of S. D. C. L. Sec. 5-22-8 (2) (1967).

The Employment Security Department of the state of South Dakota claims a lien under S. D. C. L. Secs. 5-18-16 & 17 (1967). Those sections require a public corporation on a public improvement contract not to pay the contractor until he obtains a certificate from the Employment Security Department of the state of South Dakota that the department has been paid all contributions and interest due it by the Contractor. It does not provide for any lien in favor of the Employment Security Department of the state of South Dakota against the proceeds of the public improvement contract.

Security Interests

The City's claim for an equitable setoff is partially based on debts owed the city and Williams by the Contractor on claims totally unrelated to the public improvement contract here in question. Although under S. D. C. L. Sec. 57-35-17 (1967) (U. C. C. Sec. 9-104(i)), setoffs are specifically excluded from the secured transactions filing provisions of the Uniform Commercial Code (S. D. C. L. Chs. 57-35 to 57-39 (1967)), the City was unable to cite any law allowing such a setoff priority over secured claims. Since state law does not give the setoff priority it is precluded under 26 U. S. C. A. Sec. 6323(a).

The City remains liable under the public improvement contract for the entire amount of the alleged setoff ($2,842.88). All of the parties except the United States stipulated that the City paid $1,355.50 to other contractors in order to complete the tennis courts and that that sum was no longer owing the Contractor. However, the failure of the United States to so stipulate left that fact in issue. At trial the City offered no evidence to prove such payments. The record shows only that the City owed the Contractor for the amount of $22,497.10 for work done. Thus the amount allegedly paid to other contractors to complete the tennis courts has not been proved and is not a proper setoff.

The Bank's claim for a public improvement lien fails since they did not furnish "skill, labor, materials, machinery, or supplies, services or equipment" under S. D. C. L. Sec. 5-22-1 (1967). They merely furnished the Contractor with money which could not be traced to the public improvement contract at trial. Additionally the Bank did not comply with the 30 day provisions of S. D. C. L. Secs. 5-22-4 & 7. The only action to enforce the lien that the bank took was by answer on September 18, 1970 .

Under Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509, 514 (1960), state law applies as to property ownership. The Bank claims that under Hartford Accident and Indemnity Co. v. State, 85 S. D. 608, 187 N. W. 2d 663 (1971), South Dakota law is that from the date of the assignment the Contractor had no property interest upon which the I. R. S. could attach a lien.

The Hartford case involved an assignment of the rights and obligations of a contract. Hartford had guaranteed the performance of a defaulting contractor and was forced to complete the project. Therefore, at the date of the assignment Hartford had the property right to the proceeds of the contract. This situation is specifically excepted from the secured transactions provisions of the Uniform Commercial Code -- Article 9, S. D. C. L. Sec. 57-35-14 (1967) (U. C. C. Sec. 9-104(f)), since it is a "transfer of a contract right to an assignee who is also to do the performance under the contract."

Uniform Commercial Code Sec. 9-104, Comment 6, states:

In general . . . security transfers of . . . contract rights . . . are within the Article (9). . . . Paragrpah (f) excludes from the Article (9) certain transfers of such intangibles which, by their nature, have nothing to do with commercial financing transactions.

The assignment in the Hartford case had nothing to do with commercial financing transactions. However, the assignment here by the Contractor to the Bank was solely a commercial financing transaction covered by S. D. C. L. Sec. 57-35-3 (1967) (U. C. C. 9-102(2)) as an assignment for security. The Bank was attempting to take a security interest in the public improvement contract to secure future advances under S. D. C. L. Secs. 57-36-5 to 10 (U. C. C. 9-204). Such a security interest would take priority even against a trustee in bankruptcy if properly perfected. 4 R. ANDERSON, ANDERSON ON THE UNIFORM COMMERCIAL CODE Sec. 9-204:17 (2d ed. 1971).

S. D. C. L. Sec. 57-38-3 (1967) (U. C. C. 9-401(1)(c) alternative 2) requires that a financing statement covering a security interest in contract rights be filed with the secretary of state to be perfected. The Bank only filed with the Clay County Register of Deeds. 26 U. S. C. A. Sec. 6323(a) & (h)(1) provides priority for a security interest if it has "become protected under local law against a subsequent judgment lien arising out of an unsecured obligation . . ." S. D. C. L. Secs. 57-37-1 & 3 (U. C. C. 9-301(1)(b) & (3)) subordinates an unperfected security interest to the interests of a lien creditor. A trustee in bankruptcy is a lien creditor from the date of the filing of the bankruptcy petition. See United States v. G. P. Fleetwood & Co., 165 F. Supp. 723, 725 (W. D. Pa. 1958); R. ANDERSON, ANDERSON ON THE UNIFORM COMMERCIAL CODE Secs. 9-301:10 & 9-301:11 (2d ed. 1971); 11 U. S. C. A. Sec. 110(c). The Bank's security interest has no priority since it did not become protected under local law against the subsequent lien of the trustee in bankruptcy.

The Bank contends that the assignment is excepted from the Article 9 secured transactions provisions of the Uniform Commercial Code under S. D. C. L. Sec. 57-34-4(5) (1967) (U. C. C. 9-302(1)(e)) if it "does not alone or in conjunction with other assignments to the same assignee transfer a significant part of the outstanding accounts or contract rights of the assignor." Here the Bank was taking an assignment of the entire contract proceeds. The evidence showed that this was the Contractor's only contract at the time of the assignment of any significance. The Bank argues that since advances of only $2,596.47 were made, it was not a significant part of the Contractor's contract rights. The Court does not agree. Uniform Commercial Code Sec. 9-302, Comment 5, says the "purpose of subsection (1)(e) exemptions is to save from ex post facto invalidation casual or isolated assignments . . .." That comment goes on to say "(a)ny person who regularly takes assignments of any debtor's accounts should file." Surely the Bank does not fit this exception. The Bank regularly takes assignments and this was not a casual or isolated transaction.

There is no showing in the evidence that any of the creditors had actual knowledge of the Bank's assignment. Therefore, S. D. C. L. Sec. 57-38-4 (1967) (U. C. C. 9-401(2)), which provides for priority against creditors who had knowledge of a misfiled security interest, is not applicable. Thus the trustee in bankruptcy is not held to have knowledge of the assignment under S. D. C. L. Sec. 57-37-3 (1967) (U. C. C. 9-301(3)) since not all the creditors had actual knowledge.

Internal Revenue Service Lien

The United States is given a lien upon "all property and rights to property, whether real or personal," belonging to the nonpaying taxpayer under 26 U. S. C. A. Sec. 6321. The I. R. S. lien can be defeated only by those creditors who have perfected prior to the filing of the lien under 26 U. S. C. A. Sec. 6323(a) & (h).

Notice of a $3,675.91 tax lien was properly filed with the Clay County Register of Deeds upon all of the Contractor's property on December 15, 1969 . The Contractor's bankruptcy petition was filed on January 15, 1970 . 11 U. S. C. A. Sec. 110(c) makes the trustee in bankruptcy a judgment lien creditor from the date of bankruptcy. Thus under 26 U. S. C. A. Sec. 6323(a) the tax lien of the I. R. S. is valid as against the trustee in bankruptcy as a judgment lien creditor only for $3,675.91, the amount stated in the lien notice given prior to January 15, 1970, the date of the filing of the petition of bankruptcy.

26 U. S. C. A. Secs. 6321 to 6326 provide the necessary steps for the I. R. S. to perfect a tax lien. 26 U. S. C. A. Secs. 6331 to 6344 provide the necessary steps for the I. R. S. to levy upon property for the collection of unpaid taxes. 26 U. S. C. A. Sec. 6323(f) requires the filing of a notice of a lien to obtain priority over certain secured creditors. The I. R. S. filed the notice of lien for $3,675.91, thus perfecting that claim against all subsequent creditors. However, as to the additional claims of the I. R. S., only a notice of levy was filed. Thus the I. R. S. was relying on the automatic lien provisions of 26 U. S. C. A. Secs. 6321 & 6322 to give them priority over general creditors as to the remainder of their claim. However, the notices of levy on December 1, 1969 , and May 12, 1970 , were not sufficient to serve as notices of liens under 26 U. S. C. A. Sec. 6323(a) & (f).

The fact that the taxpayer's right to the proceeds of the contract was dependent upon his performance of the contract and acceptance by the City does not mean that the proceeds were not property or rights to property of the taxpayer under 26 U. S. C. A. Sec. 6321. Seaboard Surety Co. v. United States [62-2 USTC ¶9653], 306 F. 2d 855, 859 (9th Cir. 1962); Home Ins. Co. v. B. B. Rider Corp. [63-1 USTC ¶9235], 212 F. Supp. 457, 462 (D. C. N. J. 1963). The taxpayer had more than a mere contingent right to the proceeds of the contract.

31 U. S. C. A. Sec. 191 provides that whenever "any person indebted to the United States is insolvent . . . debts due the United States shall be first satisfied. . . ." There is no question that under 11 U. S. C. A. Sec. 21, the taxpayer was insolvent on January 15, 1970 . The only remaining issue is whether the priority given the trustee in bankruptcy by 26 U. S. C. A. Sec. 6323(a) is subordinate to the priority given the United States by 31 U. S. C. A. Sec. 191. The United States Supreme Court stated in United States v. Key [70-1 USTC ¶9300], 397 U. S. 322, 332 (1970) that 31 U. S. C. A. Sec. 191 "must apply according to its terms except where expressly superseded, or where excluded by a later enactment 'plainly inconsistent' with it." The Key case held that 31 U. S. C. A. Sec. 191 is applicable to tax claims of the United States in corporate reorganization proceedings under X of the National Bankruptcy Act, 11 U. S. C. A. Secs. 501-676. In the Key case there were no priorities given by the Bankruptcy Act which were plainly inconsistent with 31 U. S. C. A. Sec. 191.

26 U. S. C. A. Sec. 6323(a) was enacted long after 31 U. S. C. A. Sec. 191 and is plainly inconsistent with it. Congress could not have intended any other purpose for 26 U. S. C. A. Sec. 6323(a) than to give certain creditors priority over unfiled claims of the United States . Therefore, 31 U. S. C. A. Sec. 191 does not apply here and does not defeat the claim of the trustee in bankruptcy ² under 26 U. S. C. A. Sec. 6323(a). See In re Tennessee Central Ry., 316 F. Supp. 1103, 1106-08 (M. D. Tenn. 1970).

Judgment Lien Creditors

The evidence at trial failed to show that any amount of Fullerton Lumber Company's claim was secured or arose out of the public improvement contract here in question. Any status that Fullerton may have had as a judgment lien creditor was lost when its garnishment was dismissed with prejudice on November 19, 1970 .

As explained above, the trustee in Bankruptcy under his preferred status in 11 U. S. C. A. Sec. 110(c) as a judgment lien creditor is entitled to the contract proceeds after the claim of Egger Steel Company for $6,250.02 and the claim of the I. R. S. for $3,675.91 are satisfied. 26 U. S. C. A. Sec. 6323(a). All of the other claims have no priority and must be satisfied through bankruptcy proceedings.

This memorandum decision shall constitute the findings of fact and conclusions of law as required by Rule 52 of the Federal Rules of Civil Procedure upon a trial to the court without a jury.

¹ Clay County is the county of the debtor's (Contractor's) residence.

² The remainder of the I. R. S. claim for unpaid taxes will still have priority over the remaining general creditors under the Bankruptcy Act. 11 U. S. C. A. Sec. 104(a).

 

 

[61-2 USTC ¶9502]Baldwin Kitchen Cabinet Corp., Plaintiff v. Hyman Artz, Defendant

N. Y. Supreme Court, Nassau County, Part I, 12/13/60

[1954 Code Sec. 6323]

Lien for taxes: Validity: Filing of notice.--Where a subcontractor's mechanic's lien against a home owner (for materials furnished to improve his home) exceeded the amount due from the owner to the insolvent general contractor, there is no debt owing to the general contractor-taxpayer to which the government's tax lien could attach. Further, since the property involved was realty, the government had no liens against it because of a failure to file them in the county in which such property was situated.

Marvin Usidian, 160 Broadway, New York , N. Y., for lienor. S. S. Goldsmith, 60 East 42nd St. , New York , N. Y., for defendant A & B Home Improvement Co.

MARIO PITTONI, Justice of Supreme Court, Nassau County , N. Y.:

A subcontractor has brought this action to foreclose a mechanic's lien. The defendant, A & B Improvement Corporation (hereafter called the contractor), was the general contractor for the remodeling of a house owned by the defendant, Hyman Artz (hereafter called the owner). The sub-contractor now moves for an order granting leave to Hyman Artz, the owner of the property, upon payment to the plaintiff-sub-contractor of the full amount of the judgment entered by the contractor against owner Artz on January 11, 1960, to have that judgment canceled, and to have the plaintiff-sub-contractor's mechanic's lien vacated and canceled.

On April 20, 1959 , the sub-contractor filed a mechanic's lien against the owner in the amount of $1,081.91 for materials furnished. Subsequently, the sub-contractor sued the defendant-contractor, and recovered a judgment in the same sum.

On May 22, 1959 , the contractor sued the owner, and on January 11, 1960 , obtained a judgment in the amount of $1,008.24. Although the owner and contractor agreed to settle this judgment for $950, the compromise was never consummated.

On March 27, 1959 , and on June 5, 1959 , the government levied tax assessments against the contractor in the sum of $720.51 and $310.90, respectively. These assessments were never filed in Nassau County , but were recorded in New York and Queens counties, and with the owner and his attorney between September 24 and March 17, 1959 .

By order dated July 28, 1960 , Mr. Justice Brennan denied a motion to add the Treasury Department as a party defendant and to permit the owner to pay the judgment owing to the contractor into court. Denial of permission to pay the obligation due the contractor into court was predicated on the fact that settlement of the judgment for $950 was never effectuated and that this judgment did not bind the sub-contractor, whose lien and judgment is for $1,081.96.

On this motion, the sub-contractor and owner again seek to pay the $950 into court on condition that the sub-contractor's lien and the contractor's judgment be canceled. The attorney for the contractor asserts the priority of his lien attaching to the judgment procured by his services, and the government asserts the priority of its tax lien.

Section 475 of the Judiciary Law provides that "From the commencement of an action * * * the attorney who appears for a party has a lien upon his client's cause of action, * * * which attaches to a * * * judgment * * * in his client's favor, and the proceeds thereof in whatever hands they may come * * *." It is to be noted that the statutory lien attaches to the judgment from the date of commencement of the action (Matter of City of New York [Coblentz] [59-2 USTC ¶9613], 5 N. Y. 2d 300, 307, cert. granted sub nom. United States v. Coblentz, 363 U. S. 841), which in this instance is May 22, 1959 . The lien of thue sub-contractor, however, had been filed one month earlier, April 20, 1959 , and takes procedence.

Lien Law, section 36-a (now section 70), applicable to private improvements, declares that funds received by a contractor from an owner are trust funds to be applied first to the payment of sub-contractors. For the purpose of civil action only, the trust funds include the right of action upon an obligation for moneys due (Lien Law, sec. 36-a, now sec. 70). When the action in behalf of the contractor was begun, its attorney did so with knowledge of the sub-contractor's prior filed lien. He thereby assumed the risk that his attorney's lien could be nullified, since any moneys recovered were first subject to the payment of sub-contractors. Here that risk became a reality.

Although the attorney's retainer is dated prior to the time that the sub-contractor's lien was filed, that fact is of no help to him in this case. The retainer provides: "* * * You hereby agree to pay me, and you authorize me to retain out of any moneys that may come into my hands, 50% of any sums received or recovered by you * * *." The language of the retainer contract speaks of a future transfer of money to the attorney, at a subsequent time upon receipt of funds. The retainer does not purport to vest a present or immediate assignment, effective on the date of the making of the contract (cf. Matter of the City of N. Y. [Coblentz] [59-2 USTC ¶9613], 5 N. Y. 2d 300, 307). Consequently, the retainer is not sufficient to defeat the priority of the sub-contractor's lien. Nor does the derivative nature of a sub-contractor's lien affect its status. A sub-contractor's rights as lienor are measured by the rights of the general contractor only in the sense that he cannot recover more than is due the contractor from the owner (Lien Law, sec. 4; Lorber v. Eskof Real Estate, Inc., 194 N. Y. S. 2d 766, 769, and cases cited).

Turning to the government's tax lien, this court, at the outset, is faced with a challenge directed to its jurisdiction. The government appears specially (C. P. A., sec. 237-a) and states that because it was not made aparty to the action or served with process herein, this court is without jurisdiction to determine its rights. This self-same contention was made and rejected by the court in Matter of the City of New York ([Coblentz] [59-2 USTC ¶9613], 5 N. Y. 2d 300, 301). The Court of Appeals therein said: "This is not a situation in which the Government is cast in the role of a defendant being sued without its consent but, rather, that of a claimant to disputed funds. In intervening for the purpose of presenting its claim, the United States is an actor--voluntarily asserting a claimed right--and is not a defendant. In so acting, the Government suffers no impairment of its sovereignty by prosecuting such a claim in the appropriate forum where the funds are held * * *."

The question of priority of the conflicting liens asserted to the fund payable by the owner presents a difficult problem. There are two fundamental statutory rules involved: liens against real property must be filed in the county clerk's office where the property is situated (Lien Law, sec. 240, subdiv. 1); and liens against personal property need only be filed in the office of the town or city clerk where the owner has an office (Lien Law, sec. 240, subdiv. 2).

The most recent case on the subject is Aquilino v. United States [60-2 USTC ¶9538] (3 N. Y. 2d 511, 363 U. S. 509). In that case, the owner of real property deposited into court the amount due to the insolvent general contractor-taxpayer. Unpaid subcontractors had filed mechanics' liens a few days after the government filed its tax lien in the office of the city clerk where the taxpayer-contractor resided. The Court of Appeals in the Aquilino case (3 N. Y. 2d 511) gave preference to the government lien on the theory that the debt owing to the general contractor from the owner constituted "property and right to property" belonging to the contractor-taxpayer under Internal Revenue Code (Title 26, sec. 3670; now sec. 6321 et seq.). The Court of Appeals therefore held it immaterial that the government lien had not been filed in the county clerk's office since the lien was only asserted against personally. Basically, the Court of Appeals determined that federal law and not state law controls as to what constitutes "property or rights in property" of a taxpayer. On appeal to the United States Supreme Court [60-2 USTC ¶9539] (363 U. S. 522) that court held that state law controls in determining the nature of the legal interest which the taxpayer had in the property (accord, U. S. A. v. Durham Lumber Co., [60-2 USTC ¶9539] 363 U. S. 522). It therefore remanded the case to the Court of Appeals for its determination of what rights or property a general contractor possessed to moneys or an obligation owing from an owner of property and stemming from an improvement to reality where subcontractors asserted a lien for payments still due to them. Without the benefit of a Court of Appeals decision, thereon, this court must answer the same problem.

This court is inclined to follow the rationale of the Appellate Division holding in the Aquilino case (2 App. Div. 747), viz., that there is no debt due from the owner to the general contractor to which the government's lien could attach. When the plaintiff sub-contractor furnished materials for the improvement of the owner's property, it thus enhanced its value and thereby acquired an interest therein to the extent of the materials furnished; and by filing its notice of lien, perfected its inchoate right to such interest (2 App. Div. 2d at 748, and cases cited). Having commenced an action to enforce its lien, the sub-contractor is entitled to judgment thereon pursuant to Lien Law, (sec. 56), which provides for payment to the lienor out of the proceeds of the sale of real property before payment of any part of the proceeds to the person (general contractor, A & B) for whom the lienor (subcontractor) furnished the materials.

If the owner deposits the money owing into court, such funds stand as a substitute for the real property and must be distributed by the judgment in the same manner as if the money or fund were proceeds realized on a sale (cf. Sayville Federal Savings & Loan Ass'n v. Schons, 17 Misc. 2d 54). The government here had no lien against the real property involved since it never filed its lien in the county clerk's office in Nassau (Lien Law, sec. 240, subdiv. 1). Consequently, the government would have no lien to any funds deposited in substitution therefor.

Since the sub-contractor is the moving party, together with the owner (Artz), the court assumes that the sub-contractor thereby consents that the amount of its lien (which is greater than the judgment owing by the owner to the contractor. In any shall be controlled by the former. In any event, the sub-contractor cannot recover from the owner more than is due to the contractor (Lien Law, sec. 4). This court, however, cannot permit payment into court of an amount less than the actual judgment held by the contractor, since the settlement of that judgment with the owner Artz for $950 was not in fact accomplished.

Accordingly, this motion is granted to the extent that the defendant, Hyman Artz, is permitted to deposit into court the full amount of the judgment owing to the defendant, A & B, with interest thereon, on condition that the judgment held by A & B, and the lien filed by the plaintiff sub-contractor against the property of Artz, be cancelled. The plaintiff's judgment against the defendant, A & B, will be accordingly reduced. Following the deposit, the plaintiff sub-contractor may proceed with his motion for summary judgment in accordance with the decision herein, and may enforce the same, if granted, against the funds on deposit. Settle order on notice.

 

 

[40-2 USTC ¶9492] United States of America , Plaintiff, v. Rob ert I. Woodside, The Securities Investment Company, L. C. Woodside, S. W. Snelling, W. N. Watson, and Federal Land Bank of Columbia , Defendants

District Court of the United States of America, Western District of South Carolina, Decree of Foreclosure and Sale, Eq. No. 521, Filed May 7, 1940

Lien for taxes: Statute of limitations: Priority, etc.--In a suit to enforce and foreclose a lien in favor of the United States on account of taxes and interest for 1920, 1921, 1924, and 1925, the Court holds that the suit was properly begun within the statutory period as extended by a waiver, that the suit is dismissed as to certain parties who are purchasers for value without actual or constructive notice of the Government's lien, that certain parties bought subject to such lien, that taxpayer's wife had no claim or dower interest in the lands in question, and that the property be sold in the manner described, the proceeds to be held until such time as the rank of certain parties is determined.

O. H. Doyle, U. S. Attorney, and E. P. Riley and T. A. Wofford, Assistant U. S. Attorneys, all of Greenville, S. C., for plaintiff. W. D. Workman and W. B. McGowan, both of Greenville , S. C., for certain of the defendants.

LUMPKIN, District Judge:

This is a suit in equity, commenced on October 7, 1936 , by the filing of a bill to enforce and foreclose a lien in favor of the United States , on account of an assessment of income taxes and interest against Rob ert I. Woodside, for the years 1920, 1921, 1924, and 1925, in the aggregate amount of $15,364.03. An amended Bill was filed January 18, 1939, but the allegations are the same as those contained in the original bill, with the exception of the fact that certain tracts of land in Pickens County, South Carolina, are included in the description of the property which the government seeks to sell and have the proceeds of sale applied to its lien debt, and it is alleged that these tracts of land were inadvertently omitted from the original bill. The amended bill alleges that prior to the commencement of this suit, Rob ert I. Woodside became indebted to the United States on account of income taxes and interest duly assessed against him for said years, and in said amount, and that such assessments were entered on the Commissioner's May, 1930, No. 3 List, and signed by the Commissioner May 17, 1930, and that the assessment list covering the total assessments against the said Rob ert I. Woodside was received by the Collector of Internal Revenue for the Collection District of South Carolina on May 20, 1930; that notice and demand for payment was made May 22, 1930, and numerous times thereafter, and the said taxpayer has failed and refused to pay the said taxes and interest; and the lien of the United States then and there attached to and became a charge upon all real and personal property belonging to the said taxpayer. (See Sec. 1560, Title 26, U. S. C. A.) The bill further alleges that on January 23, 1931, the defendant, Rob ert I. Woodside, executed and delivered to Securities Investment Company, a corporation, of which Rob ert I. Woodside was president and treasurer, certain tracts of land, fully described in paragraphs 9, 10, and 11 of the said Amended Bill, and that on the date of said conveyance the lien of the United States had attached to and become a lien upon all of the said real estate because of the fact that the Securities Investment Company, through its officers and agents, had actual notice, information and knowledge of the existence of said lien. The said Amended Bill also alleges that notice of said tax lien was filed with the Clerk of the Court for Greenville County, South Carolina, on June 11, 1932, and with the Clerk of the United States District Court for the Western District of South Carolina, on June 16, 1932, as provided by Section 1562, Title 26, U. S. C. A.; that on the 9th day of May, 1935, the defendant, Rob ert I. Woodside, submitted to the Commissioner of Internal Revenue and Secretary of the Treasury an offer in compromise of his tax liability, which said offer of compromise contained the following waiver provision:

2. The benefit of any statute of limitations applicable to the assessment and/or collection of the liability sought to be compromised, and agree to the suspension of the running of the statutory period of limitations on assessment and/or collection for the period during which this offer is pending or the period during which any installment remains unpaid and for one year thereafter.

and that said offer of compromise was rejected on October 29, 1935 .

The defendants other than Rob ert I. Woodside are made parties to the said suit on account of their interest, or apparent interest, in certain of the said parcels of land.

The defendant, Securities Investment Company, has filed an answer, alleging that the assessments made against the defendant, Rob ert I. Woodside, at the time they were entered were barred by the statute of limitations. It denies that the said taxes are justly due and owing from the defendant, Rob ert I. Woodside, and alleges further that Lot No. 1, according to plat recorded in Plat Book F, page 152, R. M. C. Office for Greenville County, South Carollina, was sold to L. C. Woodside, and that Lot No. 2 of same plat was sold to S. W. Snelling; that said two parties are bona fide purchasers, without notice of the government's lien; that W. N. Watson is likewise a bona fide purchaser, without notice, of tract of land described in the original Bill as a one-half undivided interest in 220 acres of land situated in Gantt Township, Greenville County, South Carolina, and that this defendant further alleges that the suit of the plaintiff is barred by the statute of limitations.

S. W. Snelling and L. C. Woodside filed answers, setting up the same defenses claimed by the defendant, Securities Investment Company, and particularly that they were each purchasers of a tract or parcel of said lands, without either actual or constructive notice of the existence of a lien in favor of the United States .

The defendant, Rob ert I. Woodside, filed an answer claiming substantially the same defenses as set up by the answer of the Securities Investment Company, and in addition thereto he alleges that the City of Greenville claims a lien for paving assessments and taxes, which he believes to be a lien, superior to the plaintiff's lien, if any; that the County of Greenville and State of South Carolina claim a lien on all of the said property on account of unpaid county and state taxes; and, further, that his wife, Mrs. Lula B. Woodside, claims a dower interest in all of the property described in the bill and amended bill, in the event it is adjudged that the plaintiff has a valid lien against the specific property described, and is not barred by the statute of limitations from bringing suit to enforce said lien.

The defendant, The Federal Land Bank of Columbia , South Carolina , filed an answer, alleging that it had a first lien by way of mortgage on the tract of land first described in paragraph 10 of the original Bill.

The defendant, W. N. Watson, filed an answer alleging that he was the owner of the 220 acre tract of land last described in paragraph 10 of the original Bill, and that he acquired the one-half undivided interest of Rob ert I. Woodside without either actual or constructive notice of the government's lien.

Since the filing of the Bill in Equity, the defendant, W. N. Watson, has petitioned the Court to dismiss him as a party defendant, and on March 30, 1938, Judge H. H. Watkins, United States District Judge, signed an order adjudging that the tax lien of the United States was not enforcible against the one-half undivided interest of the said Rob ert I. Woodside conveyed to the said W. N. Watson on May 19, 1932, which was prior to the date upon which notice of the said tax lien was recorded in the office of the Clerk of Court for Greenville County, South Carolina, there being no evidence that he had actual notice of the lien, and the said W. N. Watson is no longer a party to the said action.

Upon the call of the case for trial, W. D. Workman, Esq., representing the defendants, Securities Investment Company, Rob ert I. Woodside, L. C. Woodside, and S. W. Snelling, stated that he had no testimony to offer. The United States Attorney thereupon introduced testimony which sustains all of the allegations of the said Bill and Amended Bill, and from this testimony it appears conclusively that the United States acquired a lien on all of the real and personal property of the said Rob ert I. Woodside on May 22, 1930 . The defendant, Rob ert I. Woodside, conveyed all of the lands described in the original and amended Bill to Securities Investment Company on January 23, 1931, and although the lien of the United States was not recorded in the office of the Clerk of Court for Greenville County, South Carolina, until June 11, 1932, the Securities Investment Company had actual notice of the existence of said lien by reason of the fact that its president and treasurer had knowledge of the same, and his knowledge is imputed to the corporation, and the conveyance was therefore made to said corporation subject to the lien of the United States. Heyward v. U. S. , 2 Fed. (2d) 467 [1925 CCH ¶7019]; U. S. v. Snyder, 149 U. S. 120 * * *; U. S. v. Curry, 201 Fed. 371 * * *.

Although Mrs. Lula B. Woodside, the wife of the defendant, Rob ert I. Woodside, is not a party to the action, the answer of the defendant, Rob ert I. Woodside, alleges that his wife claims a dower interest in said lands, if it is determined that the United States has a lien and a right to foreclose same. It appears that Mrs. Lula B. Woodside renounced her inchoate right of dower on all of the conveyances made by Rob ert I. Woodside to the Securities Investment Company. She therefore has no valid claim or right to dower interest in said lands.

As already stated, the United States recorded a notice of its lien in the office of the Clerk of Court for Greenville County , South Carolina , on June 11, 1932 . It appears that the defendant, L. C. Woodside, purchased one of the lots of land described in paragraph 9 of the Amended Bill on July 21, 1932 . The said L. C. Woodside, therefore, had constructive notice of the existence of the lien of the United States , and took said lot of land subject to the said lien. Likewise, the defendant, S. W. Snelling, purchased one of the lots described in paragraph 9 of the said Amended Bill on February 21, 1933 , having constructive notice of the said lien, and the conveyance to him is subject to the lien of the United States .

When the defendant, Rob ert I. Woodside, submitted his offer in compromise on May 9, 1935, he agreed that the benefit of any statute of limitations applicable to assessment and collection be suspended while the said offer in compromise was pending and for one year thereafter. The offer was rejected on October 29, 1935 , and this suit was filed October 27, 1936 . Therefore, the statute of limitations did not bar the plaintiff's lien or action to enforce the same.

It appears from the testimony that since the commencement of this action, the Federal Land Bank of Columbia , South Carolina , has instituted action in the Court of Common Pleas of Greenville County, South Carolina, to foreclose its mortgage lien on the tract of 54 acres first described in paragraph 10 of the amended bill. It is conceded by counsel for the United States that the Federal Land Bank of Columbia . South Carolina , has a first lien on said lands. The United States appeared in said action and answered, and the Court of Common Pleas of Greenville County, South Carolina, had decreed that the said mortgage be foreclosed and said lands be sold, and that the lien debts against the same be paid in the order of their rank.

It further appears that the lot of land last described in paragraph 10 of the Amended Bill is involved in an action now pending in the Court of Common Pleas for Greenville County , South Carolina , in which one L. A. Wertz is seeking to foreclose an alleged mortgage. The United States is a party in this action, and its rights with respect to said lot of land may be asserted in the State Court.

The Testimony further shows that Rob ert I. Woodside conveyed all of the tracts of land described in paragraph 11 of the Amended Bill to Securities Investment Company on January 23, 1931 , and that said company conveyed the same on April 15, 1935 , to Pickens County , South Carolina , and the said county subsequently conveyed to South Carolina State Commission of Forestry. Notice of the lien of the United States has never been filed with the Clerk of Court of Common Pleas for Pickens County, South Carolina, in which county said lands are situated, and the said South Carolina State Commission of Forestry is therefore an innocent purchaser, for value, without notice of the lien of the United States; now, therefore, on motion of O. H. Doyle, United States Attorney for the Western District of South Carolina.

IT IS ORDERED, ADJUDGED AND DECREED:

(1) That the United States of America has a valid and subsisting lien against all of the real and personal property of the defendant, Rob ert I. Woodside, and has a right to foreclose said lien and have all of the property hereinafter more particularly described sold and the proceeds of sale applied to the payment of liens against the same in the order of their rank:

(2) That the suit in so far as it affects the several tracts of land described in paragraph 11 of the Amended Bill, being the lands now owned by the South Carolina State Commission of Forestry, purchased for value, without notice, actual or constructive, of the lien of the United States, be, and it is hereby dismissed;

(3) That Honorable Reuben Gosnell, United States Marshal for the Western District of South Carolina, do sell, at public outcry, to the highest bidder, for cash, in front of the Greenville County Court House, at Greenville, South Carolina, on Monday, June 3, 1940, being Salesday in June, 1940, during the usual hours of public sales, commencing at 11 o'clock, A. M., on said date, the lots or tracts of land hereinafter described, in separate parcels, and that the said United States Marshal do advertise the said sale and the terms thereof by publication in the Greenville News, a daily newspaper published at Greenville, South Carolina, once a week for three weeks next preceding the date of said sale, a description of the said lands to be so advertised and sold being as follows, to wit:

All those certain lots of land in the County and State aforesaid, in the city of Greenville, being known and designated as lots Nos. 1, 2, and 3, according to map or plat of property of J. W. Jervey, made by R. E. Dalton, Engineer, recorded in Plat Book F, page 152, being the same lots of land conveyed to me by J. W. Jervey, by deed dated October 4, 1923, recorded in R. M. C. office for Greenville County in Vol. 97, page 538, reference to said plat and deed being hereby made for a more complete description thereof.

Those two certain tracts of land in Grove Township, County and State aforesaid, about ten miles south of the City of Greenville, on both sides of Reedy Fork Creek, waters of Reedy River, containing 21 acres, and 383/4 acres, more or less, respectively, and being the same tracts of land conveyed to me by J. B. Davenport by deed dated December 31, 1927, recorded in R. M. C. office for Greenville County, in Vol. 126, page 369, reference to said deed being hereby made for a more complete description.

All that tract of land in Gantt Township, County and State aforesaid, containing twenty-five and 19/100 (25.19) acres, more or less, being the same conveyed to me by Mrs. S. K. Tindal by deed dated December 18, 1926, recorded in R. M. C. office for Greenville County in Vol. 126, page 452, reference to said deed being hereby made for a more complete description thereof.

All that tract of land in Gantt Township, County and State aforesaid, containing 9.91 acres, more or less, being the same conveyed to me by E. Inman, Master, March 9, 1923, recorded in Vol. 94, page 143, R. M. C. office for Greenville County, reference to said deed being hereby made for a more complete description thereof.

All that tract of land in Greenville Township, County and State aforesaid, designated as Lots Nos. 11, 12, 13, 14, 15, and 16, Plat Book E, Page 218, containing in the aggregate 69.73 acres, more or less, being the same conveyed to me by Howard Caldwell, October 30, 1922, Vol. 89, page 129, reference to the said deed being made for a more complete description thereof.

All that lot of land on Augusta Road , County and State aforesaid, as described in deed to me by Ida L. and W. R. Lupo, dated May 1, 1928 , recorded in Vol. 106, page 316, reference to which deed is hereby made for a more complete description thereof.

All those three tracts of land on and near Augusta Road, conveyed to me by --, and more fully described in deed of G. E. Cunningham, February 5, 1924, Vol. 103, page 10, reference to which deed is hereby made for a more complete description thereof.

All that tract of land in Gantt Township , containing 17.12 acres, more or less, being same conveyed to me by Janie A. and Francis H. Earle, May 31, 1927 , Vol. 124, page 335, reference to which deed is hereby made for a more complete description thereof.

All that tract of land in Greenville County , South Carolina , about three miles from the City of Greenville , conveyed to me by G. L. Walker, February 5, 1924 , Vol. 103, page 11, reference to which deed is hereby made for a more complete description.

(4) That the United States Marshal, conducting the sale, require the highest bidder on each of said parcels or lot of land to immediately make a cash deposit or five per cent of the bid as earnest money or evidence of good faith, such deposit to be applied on the bid should there be a compliance of same, and in the event of noncompliance to be forfeited and paid over to the plaintiff and retained by it as liquidated damages, and the premises as to which there is a failure of compliance with the bid, within ten days from the date of sale, shall be re-advertised and re-sold, upon the same terms, at such bidder's risk, on the next ensuing salesday, or some convenient salesday thereafter, to be designated by the plaintiff's attorney. If the person making the last highest bid on any lot or parcel of said land fails to make the required deposit immediately at the time of the acceptance of his bid, then the said premises shall be immediately re-sold, at such bidder's risk, on the same salesday or some subsequent salesday, at the option of plaintiff's attorney. The provision for making deposit as evidence of good faith shall not apply to the plaintiff or its agents. The purchaser will pay for documentary stamps.

(5) That upon the terms of the sale being fully complied with, the said United States Marshal do execute and deliver to the purchasers deeds, fee simple in form, to the lots or parcels so purchased, and that he thereupon pay over the entire proceeds of said sale to W. D. White, Clerk of the United States District Court for the Western District of South Carolina, to be held in the Registry of this Court until the further order of the court establishing the rank of the claims as between the City of Greenville, the County of Greenville, the State of South Carolina, and the United States of America.

(6) That the said action be and remain open on the calendar of the court for such other and further orders as may be proper for the final disposition of all issues involved in said suit, and particularly with reference to the tract and lot of land described in paragraph 10 of the said Amended Bill, both the said tract and the said lot being now involved in suit pending in the Court of Common Pleas for Greenville County, South Carolina.