Oklahoma2

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[87-2 USTC ¶9575] United States of America , Plaintiff v. William E. Drexler, Jr., William E. Drexler, Sr., Jack Singleton, Basic Glass Products Company, and Basic Glass Products Corp., Defendants

U.S. District Court, East. Dist. Okla., 86-112-C, 3/17/87

[Code Secs. 6321 and 6323 --Result unchanged by the Tax Reform Act of 1986 ]

Lien for taxes: Property subject to: Third parties, property transferred to: Priority: State tax liens.--Upon reconsideration of its denial of summary judgment, the court granted summary judgment in favor of the government and held that the taxpayer's conveyances to third parties were made with the intent to defraud creditors and were void as fraudulent conveyances. Therefore, the United States was entitled to foreclose the liens securing the tax liabilities on the real property. Such liabilities included past due federal income taxes, as well as rental payments that were being made by the company of which the taxpayer was president. Moreover, the state ( Oklahoma ) real property tax liens were senior to the federal tax liens.

Ralph F. Keen, Assistant United States Attorney, 333 Federal Courthouse, Muskogee , Okla. 74401 , John J. McCarthy, U.S. Department of Justice, Washington , D.C. 20530 , for plaintiff. Paul E. Pitts, Thompson & Cawrey, 311 Exchange Plaza, Ardmore , Okla. 73401 , for defendants.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

SEAY, District Judge:

Both plaintiff and defendants filed motions for summary judgment. These motions were denied. Both parties moved the court to reconsider its denials, for the reason that both parties agree and stipulate that there are no contested, genuine issues of any material facts. The court, after a hearing, granted the parties' joint motion to reconsider the court's denial of their motions for summary judgment.

Pursuant to Rule 56 of the Federal Rules of Civil Procedure, the court makes the following Findings of Fact and Conclusions of Law in granting plaintiff's motion for summary judgment and denying defendants' motion for summary judgment.

FINDINGS OF FACT

1. The court gave counsel for both parties an opportunity to file additional affidavits and counter-affidavits, or to present any additional evidence on the motion for summary judgment. Neither party wished to present any additional pleadings or evidence.

2. On May 28, 1985 , this court, in Civil No. 84-89-C, adjudged that defendant William E. Drexler, Sr., was indebted to the United States in the amount of $259,823.59 as of November 19, 1982 , for federal income taxes for the years 1967 through 1971. Through foreclosure proceedings the United States has received $52,559.68 which it has applied on this liability leaving a sum in excess of $200,000.00 still due.

3. Also in Civil No. 84-89-C this court adjudged that defendant William E. Drexler, Jr., was indebted to the United States in the amount of $582,525.40 as of July 9, 1984 , for federal income taxes for the years 1977 through 1980. Through foreclosure proceedings the United States has received $52,559.68 which it has applied on this liability leaving still due a sum in excess of $180,000.00.

4. Further, in Civil No. 84-89-C filed in this court, this court adjudged that defendants William E. Drexler, Sr., and William E. Drexler, Jr., did acquire ownership, in 1977 of certain real property in Carter County, Oklahoma, and that said Drexler defendants did attempt to conceal ownership of this real property from their creditors, including the United States, by placing title to this realty in succession in the names of Bruce Drexler, Francisco Velasco, and Susan Jeannette, who were nominees, alter egos and straw parties for the true owners, defendants William E. Drexler, Sr., and William E. Drexler, Jr. This court adjudged that the conveyances to Bruce Drexler, Francisco Velasco, and Susan Jeannette were made with the intent to defraud creditors and were void as fraudulent conveyances, and that the United States was entitled to foreclose the liens securing the above described tax liabilities on the said real property located in Carter County, Oklahoma.

5. Civil No. 84-89-C was filed in this court on January 20, 1984 . A notice of Lis Pendens was filed on February 8, 1984 , in Carter County, Oklahoma, with clerk and recorder for that county with respect to the involved real property in Civil No. 84-89-C. Thereafter, the marshal of this court on April 3, 1984 , did serve the occupant of this said real property with a copy of the complaint filed in Civil No. 84-89-C. The marshal's return of service identified the occupant so served as Jack Singleton.

6. On April 16, 1984 , the United States filed an amended complaint in Civil No. 84-89-C in which it named Jack Singleton as a defendant and Jack Singleton was served with process and a copy of this amended complaint by the United States marshal on April 30, 1984 .

7. It appears that at all times relevant hereto Jack Singleton was the president of the corporation known as Basic Glass Products Company and he was in control of that company and had the authority to enter into leases on behalf of that company. Defendant Jack Singleton moved the court in Civil No. 84-89-C to add Basic Glass Products Company as a defendant, on the ground that he was president of that company and had executed an oral lease of the realty in question on behalf of that company which had a business on the rented realty. Basic Glass Products Company was added as a party-defendant and in its answer, that defendant alleged that it had an oral lease for the realty in question, that it was not a party to the dispute as to the ownership of the property, and more specifically: "that defendant Basic Glass Products Company is currently making the rented payments into an escrow account to await further order of this court with regards to the disposition of the same."

8. The plaintiff United States made demand on defendants Jack Singleton and Basic Glass Products Company for payment of the rent from April 1984 up through May 1985, and for future rents. However, the defendant Basic Glass Products Company paid the monthly rentals due up through June 1985 to Susan Jeannette. This payment of rentals to Susan Jeannette from April 30, 1984 , to July 1985 was made with full knowledge by defendants Jack Singleton and Basic Glass Products Company that the United States was claiming its lien rights on these rentals.

9. The defendant Basis Glass Products Company thereafter remained in possession of the leased premises as a tenant until the premises were sold at a marshal's sale on January 2, 1986 , to defendant Basic Glass Products Company.

10. On December 26, 1985 , Basic Glass Products Company paid to Carter County, Oklahoma, $3,646.53 in satisfaction of the ad valorem real property taxes assessed on the involved realty for the years 1983, 1984, and 1985.

11. The defendant Basic Glass Products Corp. acquired all the assets and assumed all the liabilities of defendant Basic Glass Products Company. Jack Singleton is the president of Basic Glass Products Corp.

12. The court finds that defendants William E. Drexler, Sr., and William E. Drexler, Jr., owned the rentals of $900.00 per month due from defendant Basic Glass Products Company for the months of April 1984 through December 1985, inclusive for the lease of the real property involved.

13. In April of 1984, by service of the amended complaint in Civil No. 84-89-C, the plaintiff United States gave the defendant Jack Singleton, who was president and controlling officer of defendant Basic Glass Products Company, actual notice of the involved federal tax liens, together with a claim that said tax liens encumbered the monthly $900.00 rental payments that defendant Jack Singleton was causing defendant Basic Glass Products Company to make on the oral lease of the involved realty.

14. The court finds that the defendant Singleton tortiously converted these rental funds while acting for his corporate principal, defendant Basic Glass Products Company, taken over by defendant Basic Glass Products Corp.

15. The court finds the defendant Jack Singleton and the corporation he controls, defendant Basic Glass Products Company, are liable for the $900.00 monthly rental for the fourteen (14) months from May 1, 1984, to June 30, 1985, totaling $12,600.00, which they paid to Susan Jeannette. Further, the defendant Basic Glass Products Company is liable for the $900.00 monthly rentals for the six (6) months from July 1, 1985 , to December 30, 1985 , totaling $5,400.00 which it has retained and placed in escrow, less $3,646.53, which defendant Basic Glass Products Company paid in ad valorem taxes, for a total liability of $14,353.47.

16. Because the defendant Basic Glass Products Corp. has assumed by contract all of the liabilities of defendant Basic Glass Company, the plaintiff United States is entitled to a judgment against defendant Basic Glass Products Corp. in the amount of $14,353.47.

17. The Drexler defendants have been served and have failed to answer or otherwise enter an appearance and are in default.

CONCLUSIONS OF LAW

1. This court has jurisdiction pursuant to 28 U.S.C. §§1331, 1340 and 1345, and venue is proper pursuant to 28 U.S.C. §1391(b) .

2. Section 6321 of Title 26, United States Code, provides for a tax lien to secure assessed federal tax liabilities and that lien shall encumber "all property and rights to property, whether real or personal" belonging to the taxpayer. This lien encumbers all property of the taxpayer including all personal property, both tangible and intangible, including choses in action, debts, accounts receivables contract rights, judgments claim owned by taxpayer, and tort claim owned by taxpayer. United States v. Hubbell [63-2 USTC ¶9724 ], 323 F.2d 197 (5th Cir. 1963) (lien encumbered taxpayers' tort claim); Bensinger v. Davidson [57-1 USTC ¶9263 ], 147 F.Supp. 240 (S.D. Calif. 1956) (lien encumbered taxpayer cause of action for unjust enrichment); Walton v. United States, 247 N.Y.S. 2d 21 (1964) (lien attached to taxpayer's cause of action for damages for injuries); Golden v. State of California, 285 P.2d 49 (1959) (lien attached to taxpayer's contract right to receive sales price for a liquor license); Fidelity & Deposit Co. of Md. v. A to Z Equip. Corp., et al. [66-2 USTC ¶9644 ], 258 F. Supp. 862 (1966) (lien attached to taxpayer's right to sue on a bond); United States v. Bank of Celina [83-2 USTC ¶9688 ], 721 F.2d 163, 167 (6th Cir. 1983) (liens encumber taxpayers right to bank deposits); United States v. Newhart, 128 F.Supp. 726 (D.C. Iowa, 1957) (tax liens attach to account receivables and debts due a taxpayer); Beeghley v. Wilson, 152 F.Supp. 726 (D.C. Iowa, 1957) (lien attached to taxpayer's contract right to receive insurance commissions); United States v. Graham [51-1 USTC ¶9218 ], 96 F.Supp. 318 (S.D. Cal. 1951) aff'd sub nom California v. United States [52-2 USTC ¶9425 ], 195 F.2d 530 (9th Cir. 1952) (lien attaches to debt owed taxpayers by the State).

Further this lien under the specific language of 26 U.S.C. §6322 arises and encumbers property of the taxpayer at the time the assessment is made and continues until the tax is paid or the tax assessment becomes unenforceable as a matter of law. Further this lien even attaches to property acquired by the taxpayer after the lien has arisen, and it attaches to such after acquired property as the taxpayer acquires the property. Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265 (1945); Seaboard Sur. Co. v. United States [62-2 USTC ¶9653 ], 306 F.2d 855 (9th Cir. 1962).

3. A federal tax lien arises and attaches to property when the tax assessment is made. United States v. Vermont, 377 U.S. 351, 353 (1964); United States v. City of New Britain [54-1 USTC ¶9191 ], 347 U.S. 81 (1954); United States v. City of New York [55-2 USTC ¶9566 ], 132 F.Supp. 779 ( E.D. N.Y. ), aff'd [56-1 USTC ¶9504 ] 233 F.2d 307 (2d Cir. 1956); William Plumb, Federal Tax Liens (3d ed., 1972) p. 179; Mintz v. Fisher, 240 N.Y.S. 2d 649 (1963), 12 A.F.T.R. 2d 5574.

4. There are two separate and independent means of collecting and enforcing federal tax liens: (1) the admin istrative method under 26 U.S.C. §§6331 through 6343 , whereby revenue service personnel can effect seizure and sale of taxpayer's property without any judicial aid; and (2) the judicial method under 26 U.S.C. §§7401 , 7402 , and 7403 , whereby the United States brings an action for judicial foreclosure of its tax liens. These two methods are separate and distinct and neither the validity of the tax lien or its enforceability depends upon first invoking the admin istrative method under Sections 6331 et seq. before this judicial method of enforcement of liens is employed. Nomellini Construction Co. v. United States [72-2 USTC ¶9510 ], 328 F.Supp. 1281 (E.D. Cal. 1971), and Bank of Celina v. United States, supra, 721 F.2d 163 (6th Cir. 1983).

5. A knowing and intentional turn-over to a third person of monies subject to federal tax liens, contrary with the United States' demand for enforcement of its liens, and to the detriment of the tax lien, is a conversion of property, which will support a common law tort action for conversion of that tax lien. United States v. Allen [62-2 USTC ¶9704 ], 207 F.Supp. 545 (E.D. Wash. 1962); Walker v. United States [9240], 57 A.F.T.R. 2d 86-810 (N.D. Okla., 1986); United States v. Matthews, 244 F.2d 626 (9th Cir. 1957); United States v. Bank of Celina, supra, 721 F.2d 163 (6th Cir. 1983); George Adams & Frederick Co. v. South Omaha National Bank, 123 Fed. 641 (8th Cir.); United States v. Pete Brown Enterprises, Inc., 328 F.Supp. 600 (N.D. Miss. 1971); American State Bank v. Sullivan, 134 Wash. 300, 235 P. 815; Exeter Company v. Holland Corporation, 172 Wash. 323, 20 P.2d 1, 23 P. 2d 864.

6. An agent or officer of a corporation who commits a tort when acting for his corporate principal, is liable for his own acts if they be tortious, and is liable for damages flowing from such a tort. United States v. Matthews, supra, 244 F.2d 163 (9th Cir. 1957).

7. State real property tax liens are senior to federal tax liens. 26 U.S.C. 6323(b)(6).

Pursuant to the above Findings of Fact and Conclusions of Law, plaintiff's motion for summary judgment is granted, and judgment shall be entered for the plaintiff and against the defendants Jack Singleton, Basic Glass Products Company, and Basic Glass Products Corp. in the amount of $14,353.47. Defendants' motion for summary judgment is denied.

 

 

[66-2 USTC ¶9642]United States of America, Plaintiff in Error v. Home Federal Savings & Loan Association of Tulsa, a corporation; Alphonzo Williams; State of Oklahoma ex rel. Oklahoma Employment Security Commission; Evert Smith, d/b/a Asphalt Associates; D. E. Rigney and Estate of Eugene W. Reynolds, Defendants in Error

Okla. Supreme Court, Nos. 41,347, 41,349, 418 P2d 319, 7/12/66

[1954 Code Sec. 6323]

Tax liens: Priority: Oklahoma ad valorem tax.--Liens for federal taxes were superior to subsequent liens for Oklahoma ad valorem taxes. The relative priority of federal tax liens is a matter of federal law, not state law.

Four dissents.

[1954 Code Sec. 6323]

Tax liens: Priority: Foreclosure action: Attorneys' fees: Insurance premiums and abstracting charges.--Liens for federal taxes, which concededly were subordinate to mortgages, had priority over the mortgagee's claim for attorneys' fees in subsequent foreclosure proceedings. Also, insurance premiums and abstracting fees expended by the mortgagee subsequent to the date of the federal tax liens may not be included as part of the costs of the foreclosure action.

Four dissents.

Richard M. Rob erts, Acting Assistant Attorney General, Louis F. Oberdorfer, Assistant Attorney General, Lee A. Jackson, Joseph Kovner, Meyer Rothwacks, Alec A. Pandaleon, J. Edward Shillingburg, Department of Justice, Washington, D. C. 20530, John M. Imel, United States Attorney, Sam E. Taylor, Assistant United States Attorney, Tulsa, Okla., for plaintiff in error. James R. Jessup, Edward L. Jacoby, Houston, Klein & Davidson, 200 Drew Bldg., Tulsa, Okla., for defendant in error.

BERRY , Judge:

The terminal issue raised by the Federal Government's appeal from the trial court's judgment involves the priority between federal tax liens and the state lien for ad valorem taxes against real property sold at mortgage foreclosure sale.

By two separate transactions in 1958 Alphonzo Williams executed promissory notes to Home Federal Savings & Loan Association, secured by mortgages on described parcels of real property. By warranty deed (January, 1959), the debtor acquired other real property already mortgaged to Home Federal, and assumed and agreed to pay the existing indebetdness. March 1, 1959 , the mortgagor defaulted upon all the mortgage payments. Between August 25, 1961 , and September 17, 1962 , United States tax liens totaling $910,778.93, were filed against the mortgagor. On April 16, 1963 , Home Federal filed three foreclosure suits against the defaulted mortgagor for recovery of the balance due (in excess of $12,000.00), and asked judgment for attorneys' fees, abstract charges, insurance premiums, interest and costs, and for judgment of foreclosure and sale of the properties to satisfy the judgment in each action.

Numerous lien claimants were made defendants, as well as the State of Oklahoma and the Oklahoma Employment Security Commission, which claimed a lien based upon tax warrants filed subsequent to part of those of the Federal Government The State and certain lien claimant defendants disclaimed any interest. Other lien claimants either filed disclaimers, or were found to have no interest affected by the judgment and need not be mentioned hereafter. Also made defendants were D. E. Rigney, assignee of a judgment entered prior to filing of the federal tax warrants, and the Federal Government whose rights arose under the tax warrants mentioned.

In each action the trial court found the allegations of Home Federal, the Employment Security Commission, Rigney and the Federal Government were true; that the mortgagor (Williams) was indebted for the balance due on each note, and the attorneys' fees, insurance premiums advanced, interest and costs; that Home Federal's mortgage liens were prior to the rights of every other claimant; that Williams' indebtedness to Rigney, the Employment Security Commission and the Federal Government was as claimed by each party. Judgments were entered October 16, 1964 , in accord with such findings, the journal entry in each action containing the following:

"The court further finds that a dispute has arisen between the plaintiff and the United States of America as to whether or not plaintiff may sell the above described real estate at sheriff's sale, subject to taxes and tax sales. The court finds that plaintiff may sell the subject property, subject to taxes and tax sales, to which ruling and order the United States of America duly excepts and said exception is allowed.

* * *

"IT IS FURTHER ORDERED, ADJUDGED AND DECREED by the court that plaintiff may sell the above described real estate, subject to taxes and tax sales, to which ruling and order the United States of America duly excepts and said exception is allowed."

The judgment further provided that upon the mortgagor's failure to satisfy the judgments, including interest, attorneys' fees and costs, the sheriff should sell the property after appraisement and the proceeds of each sale should be distributed by the court clerk according to law, as follows:

"In payment of cost of said sale and of this action and (the principal sum of each judgment), the amount as aforesaid found to be due to the said plaintiff, together with interest thereon and costs.

"The residue, if any, shall be held by the clerk of this court to await the further order of the court."

Motion for new trial, based upon alleged errors of law occurring at the trial, was filed and overruled. Order for sale with appraisement issued October 16, 1964 , pursuant to which sale was had December 2, 1964 . Home Federal was the purchaser in each case, bidding in excess of two-thirds of the appraised value, equivalent to the portion of the judgment comprised of principal and interest. In one case (No. 31348) Home Federal was required to pay an additional $823.10 of principal and interest in order to make the required two-thirds statutory bid.

After confirmation of the sales the Government perfected separate appeals upon the original record. By appropriate order these appeals were consolidated for briefing and consideration. The fundamental issue involves the claim of reversible error inhering in the trial court's judgment directing sale of the mortgaged property subject to state ad valorem taxes. The mortgagee paid taxes ($2,051.44) apparently due for the years 1963-1964. The Government concedes the superiority of both the mortgage liens and the Rigney judgment lien. However, the Government contends the rule of relative priorities announced in U. S. v. City of New Britain [54-1 USTC ¶9191], 347 U. S. 81, 74 S. Ct. 367, 98 L. Ed 520, must be applied.

Review of cases dealing with this priority problem discloses that prior to 1950 some lower Federal courts denied superiority of federal tax liens (under 26 U. S. C. A. §3670) over prior rival liens for county taxes, local tax liens, attachment liens, landlord's liens, etc. In some instances mechanics' and materialmen's liens recorded pursuant to state statute were extended priority over federal liens under section 3670, which grants the Federal Government a lien against real and personal property of any person who refuses to pay any tax upon demand. The lien granted under this section is limited under 26 U. S. C. A. §3672:

"Such lien shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector. * * *"

In re Taylorcraft Aviation Corp. [48-1 USTC ¶9288], (CC6) 168 F. 2d 808; In re Caswell Const. Co., Inc., D. C. N. D. N. Y., [1 USTC ¶189] 13 F. 2d 667; The Riner Queen, D. C. E. D. Va., 8 F. 2d 426.

In Taylorcraft, supra, the federal lien was subordinated upon the ground that value of the security had been enhanced by labor and material for which the lien was asserted, and to permit defeat of the lien by the federal lien would work unjust enrichment.

Beginning with U. S. v. Security Trust & Savings Bank, (1950) [50-2 USTC ¶9492] 340 U. S. 47, 71 S. Ct. 111, 95 L. Ed. 53, a change became apparent. This case dealt with California law under which a creditor's attachment fixed a lien upon realty effective when recorded. That court had held that a subsequent judgment merged with the attachment lien and related back to recordation of the attachment lien. The Supreme Court reversed, observing that under California law an attaching creditor had only a contingent lien, since possible contingencies might prevent the attachment lien from being perfected by judgment and recordation. The attachment lien was declared to be nothing more than lis pendens notice of the creditor's right to perfect a lien. Further the doctrine of relation back did not operate to destroy the realities of the situation, since at the time federal liens were filed the attaching creditor did not have a judgment lien.

Following Security Trust, supra, lower courts were inclined to hold that various types of liens formerly held to be prior to federal tax liens, were perfected and choate liens under statute (of the states involved) and entitled to priority over the federal tax lien. See Petition of Gilbert Associates, Inc., (N. H.) (1952) 90 A. 2d 499, holding municipal taxes to be in the nature of a judgment under state law. U. S. v. Liverpool , etc. Ins. Co., Ltd. (1953), [54-1 USTC ¶9132] 209 F. 2d 684, holding Texas garnishment lien prior to federal tax lien. U. S. v. Acri (Ohio), [55-1 USTC ¶9138] 348 U. S. 211, 75 S. Ct. 239, 99 L. Ed. 264, holding attachment lien prior to the federal tax lien, by characterizing the attachment process under Ohio law an advance execution.

In U. S. v. Gilbert Associates, Inc., (1953) [53-1 USTC ¶9291] 345 U. S. 361, 73 S. Ct. 701, 97 L. Ed. 1071, the Supreme Court reversed, rejecting the designation of municipal taxes as being in the nature of a judgment under state law in view of the Federal question involved, and expressly denied that such taxes were entitled to priority under the statute, 26 U. S. C. A. §3672.

In Acri, supra, the Ohio Court was reversed upon authority of Security Trust, supra. The federal tax lien, recorded subsequent to date of the attachment lien but prior to the attaching creditor's judgment, was given priority despite the state court's holding that the attachment process under state law amounted to an execution in advance.

In Liverpool, etc., supra, the Supreme Court reversed a decision by the circuit court that a Texas garnishment lien was superior to a federal tax lien recorded subsequent to date of the garnishment lien but prior to date of the garnishor's judgment.

In U. S. v. Scovil, (1955) [55-1 USTC ¶9137] 348 U. S. 218, 75 S. Ct. 244, 99 L. Ed. 271, a statutory South Carolina landlord's lien was held to be only a caveat of a lien to be perfected, and subordinate to the federal tax lien filed after the landlord's lien attached.

These decisions have ben followed by U. S. v. City of New Britain, (1954) [54-1 USTC ¶9191] 347 U. S. 81, 74 S. Ct. 367, 98 L. Ed. 520, and U. S. v. Buffalo Savings Bank [63-1 USTC ¶9166], 371 U. S. 228, 83 S. Ct. 319, 9 L. Ed. 2d 283, which provide authority for the Government's contention that the trial court erred in ordering the property sold subject to state taxes, and that the rule of relative priorities of tax liens in the cases just cited must be applied. The rationale of New Britain , supra, simply is that "the first in time is the first in right." Rankin v. Scott , U. S. , 12 Wheat. 177, 179. The argument was that because the Federal statute (26 U. S. C. A. §3672) made the Government's lien invalid as to prior recorded mortgages and judgments, the federal tax lien likewise was invalid as respected statutory tax liens. This argument was answered:

"* * * The United States is not interested in whether the State receives its taxes and water rents prior to mortgagees and judgment creditors. That is a matter of state law. But as to any funds in excess of the amount necessary to pay the mortgage and judgment creditors, Congress intended to assert the federal lien. There is nothing in the language of §3672 to show that Congress intended antecedent federal tax liens to rank behind any but the specific categories of interests set out therein, and the legislative history lends support to this impression." Citing U. S. v. Gilbert Associates, Inc., supra; U. S. v. Security Trust & Savings Bank, supra.

The foundation for the proposition that a later lien for state taxes cannot be accorded priority over an earlier federal tax lien for state taxes cannot be accorded priority over an earlier federal tax lien was expressed in U. S. v. City of Greenville [41-1 USTC ¶9381], 118 F. 2d 963:

"As pointed out above, the lien for taxes is a property right of the federal government. At the least, it is an instrumentality created by that government for the collection of its revenues. We know of no principle upon which it may be subordinated or its value impaired by state action whether through exercise of the taxing power or otherwise. The error of these seems to have arisen from considering the statutory lien of the federal government as analogous to that of the holder of a lien under mortgage, which is of course subject to the power of the state to tax the mortgage property. The difference is that the rights of the mortgagee as well as of the mortgagor in the mortgaged property are held subject to the power of the state to tax it, whereas the rights of the federal government are not held subject to that power."

The settled law of priorities of liens expressed in New Britain makes further citation of authority and discussion of stated conclusion academic.

Decisions of the United States Supreme Court are binding upon this Court, and require us to promulgate rules of law in conformity therewith. Gailess v. Paukune, 208 Okla. 146, 254 P. 2d 349. Although we may give our own interpretation of the nature and effect of a state tax law for purposes of internal admin istration, meaning of federal statutes is for the United States Supreme Court, and its interpretation will be followed by this Court. State, etc. v. Oklahoma Employment Security Commission, Okl., 266 P. 2d 973; Texas Co. v. Oklahoma Tax Commission, 207 Okl. 263, 249 P. 2d 982, reversed 69 S. Ct. 561, 336 U. S. 342, 93 L. Ed. 721.

The Government finds no fault with the trial court's judgment, except for that portion which provided the property be sold subject to the ad valorem taxes. This brings us to an apparent inconsistent legal hypothesis. The mortgage lien is superior to the federal tax lien, yet by state law is subordinate to the lien for ad valorem taxes. But, the state's lien in turn must be held subordinate to the federal tax lien. From this circle of apparent legal contradiction we must reconcile legal order.

The statute, 68 O. S. 1961 §15.8, requires assessment of real property for ad valorem tax purposes as of January 1st. Taxes on real property are due and payable on November 1st following assessment. 68 O. S. 1961 §351. But, assessment of ad valorem taxes places no personal obligation upon the property owner to pay the taxes levied against the property. Allen v. Henshaw, 197 Okl. 123, 168 P. 2d 625; McDonald, v. Duckworth, 197 Okl. 576, 173 P. 2d 436. Although no personal liability for ad valorem taxes is chargeable against the owner, the taxes constitute a perpetual lien upon the realty, under section 353 of our ad valorem tax code. Ad valorem taxes are not collectible until due on November 1st of the tax year, and the lien fixed by statute cannot be enforced until the taxes are delinquent. First Nat. Bank v. Scott, 119 Okl. 106, 249 P. 282. And, no delinquency can attach until there is failure to pay at least one-half of the assessed taxes before January 1st of the year following assessment. The construction placed upon state statutes by our highest court is binding upon United States Supreme Court, Okla. Tax Comm. v. Magnolia Pet. Co., 336 U. S. 342, 69 S. Ct. 561, 93 L. Ed. 721, rhr. den. 93 L. Ed. 1111; Okla. Tax Comm. v. Texas Co., 336 U. S. 342, 69 S. Ct. 561, 93 L. Ed. 721, rhr. den. 93 L. Ed. 1111; Harding v. Hanover F. Ins. Co., 272 U. S. 494, 47 S. Ct. 179, 71 L. Ed. 372; 49 A. L. R. 713.

These principles of law governing Oklahoma ad valorem tax law were recognized in U. S. v. Okla. Nat. Gas Co. (CCA10) 285 P. 2d 333, wherein that court also stated:

"* * * But the liability of real property for ad valorem taxes arises as of January 1. Though it may be an inchoate charge on that date which does not mature until the extent of the liability is ascertained by the statutory process, when the amount is ascertained through such process, it relates back to January 1 and continues until it ripens into a statutory lien. In other words, the charge upon the real property in the nature of an in rem liability arises on January 1 and continues until the tax is ascertained in amount, ripens into a statutory lien, and is paid. * * *"

Under Oklahoma law only two means are available to avoid or remove the perpetual lien of the state for ad valorem taxes: (1) payment of taxes levied when due; (2) discharge of the lien by payment of delinquent taxes, penalties, interest and costs. This record does not disclose whether 1963 taxes against the mortgaged property were delinquent, although it does appear the 1964 taxes were due but not delinquent at the date of sale had in compliance with the trial court's judgment. Because the parties treat both years' taxes as a combined amount, which the mortgagee discharged by payment, we pass over any possible issue relative to the 1964 taxes.

At this point the problem becomes more acute. Under New Britain , supra, the Government's lien must be accorded priority as to any funds in excess of the amount required to satisfy the mortgagee's claim for principal and interest, and the judgment creditor. Under the Government's argument as to application of New Britain , the federal lien should be satisfied from proceeds of the sale ahead of the ad valorem taxes. This, in effect, simply is saying that the proceeds of the sale must discharge the Government's lien to the extent of the amount of ad valorem taxes due against the property, and the mortgagee then must remove the state's lien by payment again of such amount. This claim cannot be squared with the plain language of New Britain , which only requires that any funds in excess of that required to satisfy the mortgagee and judgment creditor is subject to the federal lien. We do not find that the reasoning or rule in New Britain purports to destroy the state's lien which arises by statute. The only excess accruing from the sale was derived from payment of the state's taxes, to remove the lien in the only manner possible under Oklahoma law.

At this point a recent holding in U. S. v. Brosnan [60-2 USTC ¶9516], 363 U. S. 237, 80 S. Ct. 1108, 4 L. Ed. 2d 1192, syllabus 1-3, appears applicable:

"1. Federal tax liens are wholly creatures of federal statute.

"3. In determining the extent of the 'property and rights to property' to which a government tax lien attaches under 26 U. S. C. §6321, the Supreme Court looks to state law."

In Brosnan, supra, although considering a different aspect of lien priorities, the court observed, p. 1201:

"* * * In any event, the basic question is not what the existing state of the law was, or even what Congress believed it to be, but whether Congress intended to exclude the application of all state procedures, whatever their existence or effectiveness might be. No such inference can be drawn from the legislative statements referred to."

The instant judgment and order of distribution did not subordinate the Government's tax lien. The order for distribution reserved the proceeds of sale to discharge the mortgage lien and judgment free of all liens. Any excess beyond this amount was reserved for further order of the court. The amount of taxes paid in by the mortgagee, and the additional sum paid to bring the bid within statutory limits in one case, constituted the only funds in excess of the mortgagee's claim. Since the judgment creditor's claim concededly was superior to the Government's lien, the additional amount paid by the mortgagee to provide the statutory bid represented an excess to which the judgment creditor's lien attached. The mortgagee's payment of taxes removed the lien of the state from the property. Being in excess of the amount of principal, interest and costs subject to the mortgagee's lien the amount paid represented an excess fund which was subject to the Government's lien claim, superior to the state's lien for taxes.

Because taxes are not debts but positive acts of the Government created by statute, they must be enforced as provided by statute. McDonald v. Duckworth, supra; Bell v. Trosper, 182 Okla. 316, 77 P. 2d 544; City of Sapulpa v. Land, 101 Okla. 22, 223 P. 640, 35 A. L. R. 72. The state's power to levy taxes extends to all property within the state, unless specifically restrained by federal law. U. S. v. Hester, 137 F. 2d 145. The mortgagee's payment of these taxes removed the lien of the state for unpaid taxes. That the state's claim upon the funds received was junior and inferior to the federal tax lien was not the mortgagee's concern. The Government could not demand payment of the amount of the taxes determined to be due from the mortgagee, nor release the lien of the taxes against the property. The taxes were legally levied, paid and received in conformity with state law, upon which the Government's rights under the federal tax lien had no effect.

The Government's lien thus could become operative upon actual receipt of the taxes by the official authorized to receive payment. The residue over and above the amount necessary to discharge the liens of the mortgagee and judgment creditor represented funds ordered held by the court clerk to await further order of the court. As to such funds the tax lien of the Federal Government is prior and superior.

What has been discussed above clarified any matter arising from a claim filed by the Oklahoma Employment Security Commission. The filing of tax warrants by the Commission did not give the state the status of a judgment creditor within meaning of section 3672, supra. State, etc. v. United States , Okla. , 266 P. 2d 973. The federal tax lien was prior to the claim of the Commission.

The other matters argued on appeal concern the trial court's failure to adjudicate the mortgagee's claims for attorneys' fees, abstracting charges and insurance premiums as subordinate to the federal tax lien. By statute attorneys' fees properly are taxed as a part of the costs in an action to enforce a lien upon real property. 12 O. S. 1961 §928; 42 O. S. 1961 §§ 5, 176; Marlin v. Williams, 118 Okla. 61, 246 P. 447; Fed. Land Bank v. Denson, 172 Okla. 225, 44 P. 2d 891. However, costs are not taxed until the judgment is final. Empire Refg. Co. v. Davis , 6 F. 2d 305. The rule of priority between such items and a federal tax lien is that a mortgagee's lien for attorney's fees is uncertain as to amount and therefore inchoate, and so subordinate to a federal tax lien filed before maturity of a mortgagee's lien for attorneys' fees. U. S. v. Pioneer American Ins. Co. [63-2 USTC ¶9532], 374 U. S. 84, 83 S. Ct. 1651, 10 L. Ed. 770. Also see annotations 94 A. L. R. 2d 748.

The items of insurance premiums and abstracting fees claimed by Home Federal were expended by the mortgagee for its own benefit, and subsequent to the date of the federal tax lien so far as this record discloses. Such items could not be included within the costs accrued or accruing, as ordered by the trial court.

We purposely avoid consideration of argument that these cases should be reversed and remanded to the trial court with directions to re-sell the properties involved. Neither objections to legality of the foreclosure sales, nor motions to set aside the sales, were interposed, and such matters are not reviewable under motion for new trial. Myers v. Carr, 173 Okla. 335, 47 P. 2d 156.

This was an equitable proceeding, and we can render or cause to be rendered the judgment which should have been rendered by the trial court. The judgment in Case No. 41,347 and Case No. 41,349 is affirmed, and the trial court is directed to enter judgment fixing Government's claim under federal tax lien as prior to any liens except those of mortgagee.

HALLEY, C. Judge and WILLIAMS, BLACKBIRD and IRWIN, Judges, concur.

JACKSON , V. C. J. and DAVISON, HODGES and LAVENDER, Judges, dissent.

No. 41,348

BERRY , Judge:

This appeal involves one of three judgments entered in the foreclosure actions, which are the subject of the appeal in cases Nos. 41,347-41,349, this day decided. In this case the sum of $3,407.90 was due Home Federal Savings and Loan Association by reason of mortgagor's default upon the note and mortgage. The mortgage security was appraised at $7,000.00. Because of the statutory inhibition (12 O. S. 1961 §762) against selling property in aid of execution for less than two-thirds of the appraised value, the mortgagee was required to pay into court an additional $823.10 in excess of the amount due for principal and interest to satisfy the two-thirds requirement.

Since the amount mentioned was in excess of the mortgage indebtedness, this amount was deposited with the court clerk in compliance with the trial court's judgment, as a part of the residue to be held by the clerk pending the further order of the court.

The United States has conceded the priority of the judgment lien of D. E. Rigney, which was entered in 1961, over the tax assessments which arose thereafter by filing of the federal tax liens. And, the Rigney lien was a valid and subsisting lien before the state taxes involved were perfected as liens against the tax debtor. The Rigney lien being superior in respect to all liens except that of the mortgagee, the excess payment above principal and interest represented a residue in the hands of the court clerk which was subject to application in order to discharge that lien.

The trial court's judgment directing the residue resulting from the foreclosure sale to be held by the court clerk until further order of the court was correct, and that judgment is affirmed.

HALLEY, C. Judges and WILLIAMS, BLACKBIRD and IRWIN, Judges, concur.

JACKSON , V. C. J. and DAVISON, HODGES and LAVENDER, Judges, dissent.

[Dissenting Opinion]

LAVENDER, Judges, Dissenting:

Although, in a prior case, I might agree with the principles of law expounded in the opinions of the majority in these three cases, I must respectfully dissent to such opinions.

The government contends that, under federal law as applied to these three cases, the federal tax liens are junior and inferior to the actual court costs, including the costs of execution sale, and to Rigney's judgment for $1,490.00 with interest thereon at the rate of six per cent per annum from August 31, 1960 to October 16, 1964, the date of the judgments in these cases, and to Home Federal's mortgage lien for principal with interest thereon to the date of the judgment in each case, but are superior to any lien for ad valorem taxes accrued after the filing of the notices of the federal tax liens, as well as to the judgment of the Oklahoma Employment Security Commission against Williams and to Home Federal's judgment against Williams for attorney's fees, abstract expenses and insurance premiums advanced, whereas, under Oklahoma law, any lien for ad valorem taxes would, except as to the court costs and costs of execution sale, be superior to the liens of all the other defendants; and that therefore it is necessary as a practical matter in such cases to apply a "circular" priority to the sale proceeds so that the government will get its proper share of such proceeds.

It is necessary herein to clarify the government's "circular" priority theory. The application of such "circular" priority to the sale proceeds would be accomplished by first crediting to a special fund in which the government would have absolutely no interest whatsoever, but for bookkeeping purposes only, an amount equal to the sum of all of the claims which under federal law are superior to the federal tax liens, and then crediting any remainder of the sale proceeds to another special bookkeeping fund in which the government would have an interest to the extent of its federal tax liens; and then, after paying the federal tax liens and debiting the same against this last-mentioned special bookkeeping fund, applying the amount so credited to the first-mentioned special, non-federal, bookkeeping fund, together with any amount remaining to the credit of the last-mentioned special, bookkeeping fund, after such debit for the federal tax liens and interest thereon, in accordance with the priorities under Oklahoma law just as though the government had not been a party to any of the cases.

In this instance, under such "circular" priority theory and the government's contention concerning priorities with respect to the proceeds of the execution sales, if the property be sold to some one other than Home Federal, there would be credited to the first-mentioned special bookkeeping fund in which the government would have absolutely no interest whatsoever an amount equal to the sum of (a) the actual court costs, including the costs of the execution sale, in each case, and (b) the unpaid principal of Home Federal's note in each case with interest thereon to October 16, 1964, the date of Home Federal's judgment in that case, and (c) Rigney's judgment for $1,490.00 with interest thereon at the rate of six per cent per annum from August 31, 1960, to October 16, 1964. The government would have no interest in the proceeds of the execution sales unless such proceeds exceeded the sum so credited to such special, non-federal, bookkeeping fund.

Home Federal points out that the amount of its bid in each of two of the cases was exactly equal to the special, non-federal, bookkeeping fund requirement with respect to Home Federal's principal and interest in the particular case, and the amount of its bid in the third case (No. 105,527 in the trial court) was exactly equal to the special, non-federal, bookkeeping fund requirement with respect to Home Federal's principal and interest in that case, plus $823.10, and that the $823.10 over and above the special fund requirements with respect to its principal and interest in the three cases would not even meet the balance required to be credited to such special, non-federal, bookkeeping fund, so that there would be nothing left to be credited to the other special bookkeeping fund in which the government, under such "circular" priority theory, would have an interest. Based thereon, Home Federal contends that, even under the government's "circular" priority theory, all questions presented by the government's appeal have become moot, as purely abstract or hypothetical questions.

In rely to this contention, the government contends that under the trial court's orders to sell the mortgaged properties subject to taxes and tax sales the amount of the unpaid ad valorem taxes against each tract became as much a part of the sale price of that property as the amount bid at the execution sale, and that, therefore, the questions presented by its appeal have not become moot.

It seems probable that the amount of ad valorem taxes paid by Home Federal on the mortgaged property involved in each case, as shown by a statement provided by the government and not disputed by Home Federal, would leave an amount, after providing for the actual court costs, including the costs of the execution sale, in that case, which, when added to the $823.10 paid into court by Home Federal in the one case, would exceed the remainder of the required credits to the special, non-federal, bookkeeping fund, so that under the government's contentions the questions presented by this appeal would not be moot. However, no statement concerning the court costs has been furnished to this court and it cannot be determined from the record before the court whether or not the sales proceeds, so augmented, would result in an excess over the requirements for the special, non-federal, bookkeeping fund.

Where, as in the present cases, real property is sold at execution sale, with appraisement, the pertinent statutes are 12 O. S. 1961 Secs. 751, 759 and 762.

12 O. S. 1961 Sec. 759 provides that:

"If execution be levied upon lands and tenements, the officer levying such execution shall call an inquest of three disinterested householders, who shall be resident within the county where the lands taken in execution are situate, and admin ister to them an oath, impartially to appraise the property so levied on, upon actual view; and such householders shall forthwith return to said officer, under their hands, an estimate of the real value of said property."

12 O. S. 1961 Sec. 751 provides in part that:

". . . if any of the lands and tenements of the debtor which may be liable shall be incumbered by mortgage or any other lien or liens, such lands and tenements may be levied upon and appraised and sold, subject to such lien or liens, which shall be stated in the appraisement."

12 O. S. 1961 Sec. 762 provides in part that:

". . . no such property shall be sold for less than two-thirds of the value returned in the inquest; . . ."

The only Oklahoma cases involving the adequacy of the amount bid at an execution sale where the real property involved in the sale was subject to an existing lien which was not involved in the action in which the sale was held, and wherein appraisement was not waived, are: Alexander v. American National Bank, 54 Okla. 345, 153 P. 130, cited by the government; Guaranty Bank of Oklahoma City v. Galbreath et al., 99 Okla. 9, 225 P. 971, also cited by the government; Hewitt v. Voils et al., 147 Okla. 270, 296 P. 447; and Miller et al. v. American Bank & Trust Co. of Ardmore, 171 Okla. 99, 40 P. 2d 1074.

In all of these cases this court held in substance and effect that when land that is seized under execution is subject to a mortgage or other lien that was not involved in the action in which the execution was issued, and appraisement was not waived, it is only the judgment debtor's interest or "equity" in the seized property that is, or may be, sold under execution; that the value of the "equity" to be sold is determined by deducting the amount secured by such lien from the appraised gross value of the seized property; that the sale does not have to bring two-thirds of the appraised gross value of the seized property but only two-thirds of the value of the judgment debtor's "equity" in the seized property, as so determined; and that a bid of two-thirds of the value of such "equity" meets the requirements of the statute.

In addition to such holding, the opinion in Guaranty Bank of Oklahoma City v. Galbreath et al., supra, also holds, in the third paragraph of the syllabus, that:

"When property is sold under execution, subject to tax liens shown by the appraisement, and such amount of unpaid taxes as shown by the tax records, including penalty and costs, together with the amount bid and offered for the interest therein held by the judgment debtor, amounts to two-thirds of the value of the property as fixed in the appraisement, such aggregate of taxes, penalty and costs, and amount bid, satisfies the law requiring the property to sell for not less than two-thirds of the appraised value."

This quoted portion, in effect, treats the statute that now appears as 12 O. S. 1961 Sec. 762, supra, as requiring that the seized property, even though sold subject to an encumbrance, be sold for not less than two-thirds of the appraised gross value of the seized property, contrary to the two-thirds of the value of the equity rule of Alexander et al. v. American National Bank, supra, cited with approval therein.

The quoted rule in the Guaranty Bank case would tend to support the government's position that when real property which is sold under execution is subject to unpaid taxes, the amount of such unpaid taxes is to be considered as much a part of the sale price of the property sold as the bid made at the sale. However, consideration of the entire opinion, and of the facts as set forth in the opinion, discloses that the bid at the sale was exactly two-thirds of the value of the judgment debtor's interest or equity in the seized property, as shown by the appraisement which was approved in the opinion, although the tax liability as shown in such appraisement turned out to be slightly lower than the tax liability as shown by the tax records, and that the quoted holding was entirely unnecessary to the conclusion reached in the opinion refusing to vacate the sale because the purchaser, after confirmation of the sale without any appeal therefrom and after receiving the sheriff's deed, succeeded in obtaining a reduction in the assessed valuation of the property for the tax years involved, with a consequent reduction in the tax liability for those years. In fact, this court was without jurisdiction to pass upon the question involved in the quoted holding because such question was not properly preserved for review by this court, for, like the question concerning the error in the appraisement as to the tax liability, it was involved in the confirmation of the sale and no appeal was taken from the order of confirmation.

The quoted paragraph of the syllabus to the Guaranty Bank case is treated by Shepard's Citator as being followed in Hewitt v. Voils et al., supra. Consideration of that opinion discloses that the court not only questioned that part of the Guaranty Bank case but in effect overruled it. See the first paragraph of the court's syllabus to the Hewitt case, which is based on the rule of Alexander et al. v. American National Bank, supra, the "parent" case on the subject of the adequacy of the bid when real property seized on execution is subject to a lien not involved in the action in which the execution was issued.

Therefore, under the Oklahoma decisions concerning land that is subject to a mortgage or other lien that was not involved in the action in which the execution was issued and appraisement was not waived, it is only the judgment debtor's interest or equity in the seized property that is, or may be, sold under such execution, and the value of the interest or equity to be sold under execution is determined by deducting the amount secured by such mortgage or other lien from the appraised gross value of the seized property. By definition, the amount of the mortgage or other lien is excluded from the value of the interest or equity which is to be sold and so cannot be considered as a part of the sale price, or proceeds, of the property that is sold under execution.

It is clear that the proceeds of the execution sales of the properties involved in these three cases were not sufficient to supply the amount required in these cases, under the government's "circular" priority theory, to be credited to the special, nonfederal, bookkeeping fund, before the government, under such theory, could have any interest whatsoever in the proceeds of such sales. Consequently, as contended by Home Federal, all questions properly preserved for review by this court have become purely abstract or hypothetical questions, and the appeals have become moot and should be dismissed.

I do not believe this court has jurisdiction to determine the priority between the federal tax liens and the ad valorem tax lien, for the reason that the holder of the lien for ad valorem taxes was not made a party to the actions by Home Federal, and the government did not even ask that the holder of any such ad valorem tax lien be brought into the actions as a party thereto so that its claim of priority over such lien could be adjudicated. Also, it is noted that the majority opinion in case number 41,348 in this court (district court case no. 105,527) appears to treat the entire $823.10 paid into court by Home Federal to comply with its bid in that case as "residue" subject to further order of the trial court as provided in paragraph numbered "2" of its order concerning the proceeds of the execution sale. Such holding, in my opinion, is unnecessary to the conclusion reached in that opinion. Under the government's "circular" priority theory, the government has absolutely no interest in that $823.10, and, insofar as the government is concerned, it is immaterial what happens to that $823.10; not only the court costs, including the costs of the execution sale in that case, but also Home Federal's judgment against Williams for attorney's fee, abstract expenses and insurance premium advanced in that case may be paid from that $823.10, and under paragraph numbered "1" of the trial court's order concerning the proceeds of the execution sale in that case must be paid from that $823.10 before there can be any "residue" to be affected by paragraph numbered "2", which is affirmed in such opinion.

I dissent to the majority opinions for the above reasons, and because I believe that under Oklahoma law the lien of unpaid ad valorem taxes is not, and cannot be, involved in such an action as is here presented, except in determining the value of the judgment debtor's interest or equity that is to be sold under execution to satisfy the judgment in such an action, and, as pointed out in the majority opinion in cases nos. 41,347 and 41,349, such lien remains as a lien against the real property until the taxes are paid to the county treasurer. The question of priority between the lien of unpaid ad valorem taxes and any other lien just does not exist, and, unless for some reason which would have no legal basis, the unpaid ad valorem taxes against the real property sold under execution are, under the court's order for distribution of the proceeds of the execution sale, to be paid from such proceeds, the question of priority cannot arise.