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.,
District Court, East. Dist. Okla., 86-112-C,
[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
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 (
) real property tax liens were senior to the federal tax liens.
Ralph F. Keen,
Assistant United States Attorney, 333 Federal Courthouse,
, John J. McCarthy, U.S. Department of Justice,
, for plaintiff. Paul E. Pitts, Thompson & Cawrey, 311 Exchange
, for defendants.
GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANTS'
MOTION FOR SUMMARY JUDGMENT
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.
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.
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.
May 28, 1985
, this court, in Civil No. 84-89-C, adjudged that defendant William E.
Drexler, Sr., was indebted to the
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
3. Also in
Civil No. 84-89-C this court adjudged that defendant William E. Drexler,
Jr., was indebted to the
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
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.
April 16, 1984
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
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."
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
was claiming its lien rights on these rentals.
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.
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.
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
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.
the defendant Basic Glass Products Corp. has assumed by contract all of
the liabilities of defendant Basic Glass Company, the plaintiff
is entitled to a judgment against defendant Basic Glass Products Corp.
in the amount of $14,353.47.
Drexler defendants have been served and have failed to answer or
otherwise enter an appearance and are in default.
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)
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
USTC ¶9425 ], 195 F.2d 530 (9th Cir. 1952) (lien attaches to debt
owed taxpayers by the State).
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
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
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
USTC ¶9566 ], 132 F.Supp. 779 (
), 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
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
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);
, 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
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.
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.
¶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
Supreme Court, Nos. 41,347, 41,349, 418 P2d 319,
[1954 Code Sec. 6323]
Tax liens: Priority:
ad valorem tax.--Liens for federal taxes were superior to
subsequent liens for
ad valorem taxes. The relative priority of federal tax liens is a
matter of federal law, not state law.
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.
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.
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
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
March 1, 1959
, the mortgagor defaulted upon all the mortgage payments. Between
August 25, 1961
September 17, 1962
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.
claimants were made defendants, as well as the State of
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:
court further finds that a dispute has arisen between the plaintiff and
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.
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."
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
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.
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.
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
81, 74 S. Ct. 367, 98 L. Ed 520, must be applied.
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
C. A. §3672:
lien shall not be valid as against any mortgagee, pledgee, purchaser, or
judgment creditor until notice thereof has been filed by the collector.
* * *"
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.
U. S. v. Security Trust & Savings Bank, (1950) [50-2 USTC ¶9492]
47, 71 S. Ct. 111, 95 L. Ed. 53, a change became apparent. This case
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
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.
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.
, etc. Ins. Co., Ltd. (1953), [54-1 USTC ¶9132] 209 F. 2d 684,
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.
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.
etc., supra, the Supreme Court reversed a decision by the circuit
court that a
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
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.
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
, supra, simply is that "the first in time is the first in
right." Rankin v.
, 12 Wheat. 177, 179. The argument was
that because the Federal statute (26
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
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.
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:
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."
law of priorities of liens expressed in
makes further citation of authority and discussion of stated conclusion
the United States Supreme Court are binding upon this Court, and require
us to promulgate rules of law in conformity therewith. Gailess v.
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
istration, meaning of federal statutes is for the United States Supreme
Court, and its interpretation will be followed by this Court. State,
Employment Security Commission, Okl., 266 P. 2d 973; Texas Co. v.
Tax Commission, 207 Okl. 263, 249 P. 2d 982, reversed 69 S. Ct. 561,
342, 93 L. Ed. 721.
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
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
342, 69 S. Ct. 561, 93 L. Ed. 721, rhr. den. 93 L. Ed. 1111; Harding
v. Hanover F. Ins. Co., 272
179, 71 L. Ed. 372; 49 A. L. R. 713.
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. * * *"
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
, 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
, 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
, 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
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
At this point
a recent holding in U. S. v. Brosnan [60-2 USTC ¶9516], 363
1108, 4 L. Ed. 2d 1192, syllabus 1-3, appears applicable:
Federal tax liens are wholly creatures of federal statute.
In determining the extent of the 'property and rights to property' to
which a government tax lien attaches under 26
C. §6321, the Supreme Court looks to state law."
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."
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
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.
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.
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.
, 266 P. 2d 973. The federal tax lien was prior to the claim of the
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
61, 246 P. 447; Fed. Land Bank v. Denson, 172
225, 44 P. 2d 891. However, costs are not taxed until the judgment is
final. Empire Refg. Co. v.
, 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
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.
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
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.
Judge and WILLIAMS, BLACKBIRD and IRWIN, Judges, concur.
, V. C. J. and DAVISON, HODGES and LAVENDER, Judges, dissent.
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.
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.
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.
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.
Judges and WILLIAMS, BLACKBIRD and IRWIN, Judges, concur.
, V. C. J. and DAVISON, HODGES and LAVENDER, Judges, dissent.
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.
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
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.
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.
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.
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
12 O. S. 1961
Sec. 759 provides that:
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
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
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; . . ."
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
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."
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.
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.
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.
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.