Personality Page2

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On June 16, 1939, the Collector caused to be served on the Magnolia notice of levy and warrant of distraint, making demand upon Magnolia "for the amount now owing from you to the said Montgomery Transportation Company, Inc.", which precipitated the bill of interpleader. The assignments from the Montgomery to the Bank are valid, in good faith and made in the regular course of business and the Bank had no actual knowledge of the income tax delinquency or notice of the filing of the tax lien.

During the pendency of the suit, Montgomery was adjudged a Bankrupt and the Trustee in Bankruptcy was substituted party defendant and made claim to the fund, contending it should be distributed through bankruptcy, but the assignments to the Bank and the notice of tax lien having been made and filed more than four months prior to adjudication of bankruptcy, it was decreed that the Trustee in Bankruptcy take nothing.

[Controlling Question Is Status of Tax Lien]

In the last analysis the sole question in this appeal is whether or not the filing of the notice of a tax lien by the Collector, in the manner established by these facts, gave the Collector a prior and superior lien to the Bank, as assignee of the taxpayer. This is the controlling question. The question turns on the construction of the applicable provisions of the Internal Revenue Code, ⁷ which provides for a lien in behalf of the Government for unpaid taxes, the scope of the lien and the manner of its enforcement. ⁸

The question presented may be considered under two propositions. First, is the fund against which the lien is sought to be enforced "property or rights to property, whether real or personal, belonging to such person (taxpayer)", within the context and meaning of the statute? ⁹

A claim for work, labor and material furnished is evidence of a debt and a chose in action; it is so treated by the parties here. Is it "property or rights to property"? If it is not "property" within the meaning of the Act, then no lien can attach; if it is "property" within the meaning of the Act then the lien did attach from the date the assessment list was received in the office of the Collector of Internal Revenue asserting the lien, provided notice of the said lien covering the tax assessment was filed as provided by the Act, ¹⁰ subject to the prior and intervening right of adverse claimants. ¹¹

[Scope of Tax Collection Statute]

The statute covering collection of taxes is broad and comprehensive and Congress intended to subject all of a taxpayer's property, except that specifically exempt to the payment of taxes. ¹² "Property" is a word of very broad meaning and when used without qualification, may reasonably be construed to include obligations, rights and other intangibles, as well as physical things. ¹³ "Property" within the tax laws should not be given a narrow or technical meaning. ¹⁴

[Intangibles Subject to Ownership]

The evidence of debt for labor, work and materials furnished was subject to ownership, (the Bank claims ownership); it was subject to transfer, (it was transferred), and exclusive possession and enjoyment and may be brought within the dominion and control of a court, through some recognized process (it is the subject matter of the controversy here). Under well recognized authority these are the essential ingredients of "property" where value is the test. ¹⁵

[Effect of Western Union Tel. case]

The claim which has now ripened into the fund deposited into the Registry of this Court is "property or rights to property," although intangible in character. Appellant cites United States v. Western Union Telegraph Company, ¹⁶ as authority that a lien for taxes on "property or rights to property" contemplates a lien on tangible property only. An examination of the facts in the Western Union Telegraph Company case clearly indicates that the rights of the parties to the intangible property sought to be taxed were fixed long prior to attachment of the tax lien of the United States . There the Western Union Telegraph Company became obligated to pay to the stockholders of the Northwestern Telegraph Company certain fixed profits and the stockholders of the latter company were the third party beneficiaries to the property and the Northwestern Telegraph Company did not own, possess, or control the property at the time the tax lien was sought to be enforced against it. While in the instant case the claim of the Bank to the fund in question accrued subsequent to the filing of the tax lien against the taxpayer.

[Decision as to Property Situs Unnecessary]

Appellant does not contend that it comes within the "security exemption." ¹⁷ Conceding that appellant is a "mortgagee, pledgee, purchaser or judgment creditor", and therefore entitled to the protective provisions of sub section A, 26 U. S. C. A. Section 3672, it is argued that the transitory situs of the chose in action renders nugatory the notice of filing of the tax lien, either at the domicile of the owner, which is Lea County, New Mexico, or in Winkler County, Texas, and Eddy County, New Mexico, where the work was performed and materials furnished and did not charge the Bank with notice, as contemplated by the protective provisions of the Act. We are, thereby, asked to decide the situs of the "property", or when translated into the language of the Act, the place where "situated". In our view, it is unnecessary for us to decide the situs of the "property", or whether or not the laws of the State of Texas or New Mexico provide for the filing of the notice of tax lien against "property" falling within this classification. If this "property" does not have a situs in Texas or New Mexico, or either of them, as contemplated by the applicable laws of the states, the disjunctive provisions of sub division 2, Title 26 U. S. C. A., Section 3672, provide for the filing of the notice with the Court Clerk of the United States District Court, where the "property" is situated. Therefore, in December, 1938, when the notice of the tax lien was filed both with the United States Court Clerk for the Western District of Texas, and the United States Court Clerk for the District of New Mexico, the "property" was situated either at the domicile of Montgomery in Lea County, New Mexico or the place where the work was performed and materials furnished, in Winkler County, Texas and Eddy County, New Mexico.

[Precautions Taken by Collector]

Out of an abundance of precaution the Collector filed notice of the lien at the domicile of the taxpayer and where the work was performed and materials furnished. It is significant to note that at that time the equities of the Bank had not attached, because evidence of the fund had not been assigned. The Collector met every requirement of the Act when on December 21, 1938, after notice and demand for payment and refusal to pay the tax assessments he caused the same to be recorded in the offices of the United States District Court for the District of New Mexico; the County Clerk of Lea County, New Mexico; the United States District Court for the Western District of Texas and the County Clerk at Winkler County, Texas.

[Conclusions]

The tax lien upon all the "property and rights to property" of Montgomery, including the fund, in question, became effective as of the date upon which the assessment list, signed by the Commissioner of Internal Revenue, covering the assessments was received in the office of the Collector of the District of New Mexico and became a valid lien against the claims of Montgomery for work, labor and materials furnished for Magnolia. They were thereafter assigned and transferred to the Bank, subject to the prior and subsisting lien of the United States under Title 26, U. S. C. A. Section 3670, 3671 and 3672, Revised Statutes, Section 3186. ¹⁸

The judgment is affirmed.

¹ Hereinafter called Magnolia.

² Under authority of Acts of Congress of date January 20, 1936, Chapter 13, Section 1, 49 Stat. 1096 (U. S. C. A. Title 28, Sec. 41(26).

³ Hereinafter called Montgomery .

⁴ Hereinafter called Collector.

⁵ Section 3186 of the Revised Statutes of the United States, as amended by Section 613 of the Revenue Act of 1928, (Act of May 29, 1928, 45 Stat., 875) and Section 509 of the Revenue Act of 1934 (Act of May 10, 1934, 48 Stat. 757).

26 U. S. C. A. Section 3672, which reads in part as follows:

"VALIDITY AGAINST MORTGAGEES, PLEDGEES, PURCHASERS, AND JUDGMENT CREDITORS

"(a) INVALIDITY OF LIEN WITHOUT NOTICE. Such lien shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the collector.

"(1) UNDER STATE OR TERRITORIAL LAWS. In accordance with the law of the State or Territory in which the property subject to the lien is situated, whenever the State or Territory has by law provided for the filing of such notice; or

"(2) WITH CLERK OF DISTRICT COURT. In the office of the clerk of the United States district court for the judicial district in which the property subject to the lien is situated, whenever the State or Territory has not by law provided for the filing of such notice; or

"(3) WITH CLERK OF DISTRICT COURT OF THE UNITED STATES FOR THE DISTRICT OF COLUMBIA . In the office of the clerk of the District Court of the United States for the District of Columbia , if the property subject to the lien is situated in the District of Columbia ."

⁶ A banking corporation organized under the laws of the State of Texas , and doing business in Barstow , Ward County, Texas and hereinafter called Bank.

⁷ Title 26 U. S. C. A. Sections 3670, 3671 and 3672, Revised Statutes 3186, as amended.

⁸ Cannon v. Nicholas, Collector of Internal Revenue, 80 F. (2) 934 [35-2 USTC ¶9672].

⁹ Title 26 U. S. C. A. Section 3670, 53 Stat. 448, which reads as follows:

"PROPERTY SUBJECT TO LIEN, If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."

¹⁰ United States v. Rosenfield, et al., 26 F. Supp. 433 [39-1 USTC ¶9204].

¹¹ Exchange National Bank of Tulsa v. Davy, et al., 13 F. Supp. 226 [36-1 USTC ¶9053].

¹² Cannon v. Nicholas, Collector of Internal Revenue, supra.

¹³ Fidelity & Deposit Co. of Maryland v. Arenz, 290 U. S. 66; Matter of Dunfee, 219 N. Y. 188, 114 N. E. 52; Gaddy v. Witt (Tex. Civ. App.) 142 S. W. 926.

¹⁴ Commissioner of Internal Revenue v. Stephens-Adamson Mfg. Co., 51 F. (2d) 681 [2 USTC ¶787].

¹⁵ Gleason v. Thas, 236 U. S. 558.

¹⁶ 50 F. (2d) 102 [2 USTC ¶754].

¹⁷ 26 U. S. C. A., subsection B of Section 3672.

¹⁸ Equitable Life Assurance Society of the United States v. Moore , et al., 29 F. Supp. 179 [39-2 USTC ¶9774].

United States v. Rosenfield, et al., supra.

 

 

[67-2 USTC ¶9602] United States of America , Plaintiff v. Max B. Cohen, et al., Defendants

U. S. District Court, So. Dist. Fla., No. 66-1496-Civ.-CF, 271 FSupp 709, 7/13/67

[1954 Code Sec. 6323, prior to amendment by P. L. 89-719]

Lien for taxes: Priority: Property subject to lien: Equitable interest in mortgage: Marshaling of assets.--Under Florida law an equitable interest in a mortgage is intangible personal property, subject to a tax lien. Since the government's lien on the personalty was properly filed in the county of taxpayer's residence, its lien was prior to the claim of a subsequent judgment creditor and its later interest as a purchaser. The Court also refused to subject the government to a requirement that it marshal assets in favor of the junior lienor.

[1954 Code Sec. 6323]

Lien for taxes: Collateral estoppel: Final judgment in creditor's suit: Petition for intervention.--Neither the denial of the government's petition for intervention nor the final judgment in a Florida county circuit court creditor's suit estopped the government from pursuing its claim for unpaid taxes because the government was not a party to that law suit nor was it privy to any party to the lawsuit.

[1954 Code Sec. 6321]

Lien for taxes: Defenses against lien: Release of lien.--The defense of a release of the government's tax lien was not allowed where the government effectively denied any release of the lien and the moving party submitted nothing in support of its defense.

Harry Shapiro, Department of Justice, Washington , D. C. 20530, Lavinia L. Redd, Assistant U. S. Attorney, Main Post Office Bldg., Miami , Fla. , for plaintiff. Levine & Freedman, 725 E. Kennedy Blvd., Tampa, Fla., Bernard Wieder, 407 Lincoln Rd., Miami Beach, Fla., W. Max Smiley, P. O. Box 527, Bradenton, Fla., Jack G. Goldberg, 295 Academy St., Jersey City, N. J., Corneal B. Myers, 130 Central Ave., Lake Wales, Fla., Rob ert Manuel, 620 Shoreham Bldg., Washington, D. C., Theodore R. Nelson, 605 Lincoln Rd., Miami Beach, Fla., W. A. Gllen, P. O. Box 1438, Tampa, Fla., Philena Cohen, 711 Hillcrest Drive, Harbor Hills, Bradenton, Fla., Elwyn Middleton & Annie Middleton, 250 Beach, Fla., W. Max Smiley, P. O. Box 527,

Order

FULTON, District Judge:

THIS CAUSE came on to be heard before the Court upon the Government's Motion for Partial Summary Judgment on the issue of priority of liens as between the Government and the Defendant, Fontainebleau . The Court has heard argument of counsel, has carefully studied the memoranda of law and pleadings filed herein, as well as the affidavit submitted by the Government in support of said motion, and is otherwise fully advised in the premises.

By virtue of a contract of purchase and sale between defendant Middleton as Trustee and defendant Myers dated September, 1962, and the consummation of that transaction, defendant Cohen, the taxpayer herein, has owned a beneficial interest in a mortgage indebtedness owed by defendant Myers to defendant Middleton as Trustee. Middleton, a resident of Palm Beach County , Florida , holds this indebtedness for the benefit of Cohen and others. The mortgage covers property situate in Citrus and Levy counties, and it is Cohen's interest in this indebtedness upon which the Government now claims and seeks foreclosure of its tax lien.

As Judge Gewin of the Court of Appeals for the Fifth Circuit observed when confronted with a similar problem,

This is a case in which the Government is diligently pursuing the taxpayer in an effort to satisfy tax liens for delinquent taxes, penalties and interest; but in doing so, it is challenged by others who claim to be innocent bystanders, admitting the right of the Government to collect, but contending that they are being seriously injured by the procedure, and that their property rights are being jeopardized to satisfy tax liens against another. The case is drawn down to the narrow margin that sometimes arises between the rights of the Government to have its taxes paid and its liens satisfied, and the rights of individuals who do not owe the tax but who claim they are injured by the efforts of the Government to collect. Folsom v. United States [62-2 USTC ¶9648], 306 F. 2d 361 (5th Cir. 1962.)

The facts which gave rise to this controversy are not disputed. According to Cohen's uncontroverted affidavit, from September, 1963 to December, 1964, he was a domiciliary and resident of Manatee County , Florida , and from December, 1964 to October, 1965, he was a domiciliary and resident of Dade County , Florida . He has never resided in Citrus, Levy or Palm Beach counties, Florida .

Inasmuch as the chronology of the accrual and recording of the Government and Fontainebleau liens are the crux of this litigation, these undisputed facts are probably most clearly set forth in time-line fashion.

May 12, 1961 --District Director of the Internal Revenue Service made an assessment of income tax liability of defendant, Max Cohen, in the amount of $83,639.48, of which a balance remains due of $39,415.40.

September 7, 1961 --District Director caused notice of tax lien, based on the first assessment, to be filed with the Clerk of the Manatee County Circuit Court.

September 8, 1961 --District Director caused notice of tax lien based on the first assessment to be filed with the Clerk of the Dade County Circuit Court.

July 14, 1963 --District Director of the Internal Revenue Service made a second assessment of income tax liability of defendant, Max Cohen, in the amount of $257,732.38.

September 5, 1963 --District Director caused notice of tax lien based on the second assessment to be filed with the Clerk of the Manatee County Circuit Court. Notice of tax lien based on both assessments was filed with the Clerk of the Citrus County Circuit Court.

October 23, 1963 --District Director caused notice of tax lien based on both assessments to be filed with the Clerk of the Hillsborough County Circuit Court.

October 24, 1963 --District Director caused notice of tax lien based on the second assessment to be filed with the Clerk of the Dade County Circuit Court.

October 30, 1963 --District Director caused notice of tax lien based on both assessments to be filed with the Clerk of the Levy County Circuit Court.

April 20, 1965 --The Defendant Fontainebleau Hotel Corp. obtained a personal judgment against the defendant taxpayer Max Cohen in the Dade County Circuit Court.

April 22, 1965 --Fontainebleau Hotel Corp. recorded that judgment in Citrus County .

July 26, 1965 --Execution having been returned nolla bona, Fontainebleau Hotel Corp. filed a complaint in the nature of a creditors bill in the Citrus County Circuit Court, seeking to reach Cohen's beneficial interest in the Myers-Middleton mortgage.

November 17, 1965 --The Citrus County Circuit Court issued a temporary stay order, enjoining Cohen from encumbering or transferring any funds held by Middleton as trustee for Cohen's benefit.

December 17, 1965 --District Director caused notice of tax liens based on both assessments to be filed with the Clerk of the Palm Beach County Circuit Court.

May 18, 1966 --The Fontainebleau Hotel Corp. obtained a final decree in its Citrus County creditors suit, which decree declared Fontainebleau 's lien on Cohen's equity in the mortgage indebtedness. Cohen's interest was ordered to be sold by a special master.

Thereafter, but prior to the sale of Cohen's interest in the mortgage indebtedness, the Government attempted to intervene in the Citrus County Circuit Court proceedings. The intervention was strenuously and successfully opposed by Fontainebleau, on the grounds that (1) the Fontainebleau's final decree in the creditors suit in no way affected the Government's rights because the Government could maintain a separate and independent suit to test the priority of its claim as against Fontainebleau, (2) intervention after the final decree was not timely, and (3) the proposed intervention was not subordinate to and in recognition of the propriety of the main proceedings, as required by the Florida Rules of Civil Procedure.

Cohen's beneficial interest in said mortgage was sold at public outcry, pursuant to the Citrus County Circuit Court final decree. For the price of $50,000, Fontainebleau purchased Cohen's interest in the mortgage, the purchase price being applied towards satisfaction of Fontainebleau 's judgment against Cohen.

After being thwarted in its Citrus County attempt to reach Cohen's interest in said mortgage, the Government filed its complaint herein. Plaintiff now seeks a judgment against Cohen in the amount of the two unpaid assessments, foreclosure of its tax liens on Cohen's equitable interest in the mortgage, sale of that interest, and if appropriate, a deficiency judgment against Cohen for the balance.

The taxpayer in his answer admits his indebtedness to the Government and not only asserts that the tax liens are prior to any other liens claimed by defendants to this cause, but joins in the Government's prayer for relief. Fontainebleau raises the following defenses to foreclosure of the Government's lien:

1. Priority of Fontainebleau 's lien or interest as purchaser.

2. Estoppel by judgment, arising by virtue of the Government's failure to appeal the denial of its petition for intervention and the final judgment in the Citrus County creditors suit.

3. Release of its claim of lien by the Government.

By way of counterclaim, Fontainebleau asks this Court to marshal all of Cohen's assets subject to the Government's tax lien in accordance with equity and good conscience.

I. The Government's Lien

26 U. S. C. §6321 creates a lien in favor of the Government on "all property and rights to property, whether real or personal" belonging to a taxpayer who, after demand, neglects or refuses to pay his income tax. Whether the taxpayer has an interest in property to which a lien can attach is a matter of state law. United States v. Bess [58-2 USTC ¶9595], 78 S. Ct. 1054 (1958). That the Government has made demand, and Cohen has neglected or refused to pay his income tax is uncontroverted.

In the instant case, the Government seeks to levy upon its tax lien imposed on the taxpayer-Cohen's interest in said mortgage indebtedness. Florida law determines whether this interest in "property" or a "right to property" within the meaning of §6321, and under Florida law, an equitable interest in a mortgage is intangible personal property, which may be reached by a creditor. Evins v. Gainesville National Bank, 85 So. 659 ( Fla. 1920); Ratliff v. Nowery, 136 So. 895 ( Fla. 1931); Thalheimer Bros. v. Tischler, 55 Fla. 796, 46 So. 514 ( Fla. 1908). Thus it may be subject to a tax lien.

II. Priority as Between the Government and Fontainebleau

The tax lien created by §6321 arises automatically upon the ripening of the taxpayer's tax liability and attaches to all property and rights to property then owned and subsequently acquired by the taxpayer. Once the tax lien has attached to the taxpayer's property or rights to property, Federal law determines the priority of competing liens asserted to that interest. Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509 (1960). However, in order to enforce its lien as against certain persons designated in the statute, the Government must first give notice of its lien.

Thus under §6323, the lien created by §6321 shall not be valid as against any purchaser or judgment creditor until proper notice is filed by the Secretary of the Treasury or his delegate. Before §6323 was amended in November, 1966, it had been held that a "judgment creditor" for purposes of that statute had to be a judgment lien creditor, for until the state-created lien became choate in the Federal sense, it had no protection against a recorded tax lien. Fore v. United States [65-1 USTC ¶9101], 339 F. 2d 70 (5th Cir. 1964). This requirement has been confirmed and made statutory by the 1966 amendment, which imposes upon the Government the duty of giving notice as against judgment lien creditors in order to enforce its tax lien. So, §6323 protects a creditor against a tax lien only when the creditor's judgment becomes a specific lien against the property to which the tax lien has attached.

The notice required by §6323 is to be filed under state laws in the office in the state, county, or other governmental subdivision in which the property subject to the lien is situated, designated by the laws of that state. §28.20, Florida Statutes, designates the office of the clerk of the circuit court for the filing of federal tax liens.

The 1966 amendment to §6323 specifies that real property is deemed to be situated at its physical location, and personal property, whether tangible or intangible, is deemed to be situated at the residence of the taxpayer at the time the notice of lien is filed. The taxpayer is the person whose tax liability is the basis for the lien and against whose property the lien is imposed, in this case being the defendant Max Cohen. The committee report concerning this amendment indicates that the provision was designed to clarify already existing law. Most courts had already held that the filing of a tax lien imposed on the taxpayer's personal property was valid when filed at the taxpayer's domicile.

§114 of Public Law 87-719 provides that this amendment shall apply after the date of enactment (November 2, 1966), regardless of when a lien of the United States arose or when the lien or interest of any other person was acquired. However, the amendment shall not apply in any case in which its application would impair a priority enjoyed by a person other than the United States holding a lien or interest prior to the date of enactment. As will be seen, application of §6323 both before and after the amendment yields the same result in this case.

Applying §6323 as amended in November, 1966, the situs of Cohen's beneficial interest in this mortgage, which is intangible personal property, is his residence at the time the notice of lien was filed. The uncontroverted affidavit of defendant Cohen states that he was a resident of Manatee County on September 5, 1963, when notice of tax lien based on the second assessment was filed with the Clerk of the Manatee County Circuit Court. Notice of lien based on the first assessment had previously been filed in that county. Thus, the Government's lien based upon both assessments attached to this property on September 5, 1963, prior to Fontainebleau 's obtaining its judgment against Cohen. Thus, the Government's lien, based on both assessments, is prior to any interest the Fontainebleau may have in said property. Although Cohen later moved his residence from Manatee, a lien once properly filed remains valid against judgment creditors and purchasers even if the taxpayer later severs all connection with his former residence. §6323(f)(2)(B); Grand Prairie State Bank v. United States [53-2 USTC ¶9481], 206 F. 2d 217 (5th Cir. 1963).

Even applying the former §6323 and case law thereunder, the result is still the same. Case law had established that the situs of intangible personal property was the domicile of its owner. See Campbell v. Bagley [60-1 USTC ¶9340], 276 F. 2d 28 (5th Cir. 1960); United States v. Goldberg [66-2 USTC ¶9523], 362 F. 2d 575 (3rd Cir. 1966); and cases cited therein. Under Florida law, a mortgage is a specific lien on property and thus is a chose in action, Evins v. Gainesville National Bank, 85 So. 659 ( Fla. 1920); Ratliff v. Nowery, 136 So. 895 ( Fla. 1931) which is intangible personal property, Vogel v. New York Life Insurance Co., 55 F. 2d 205 (5th Cir. 1932). The same holds true of an equitable interest in a mortgage. Thus, under the former §6323 the notice required of the Government still had to be filed in the county in which Cohen was domiciled, again being Manatee County in 1963.

It is the taxpayer, Cohen's domicile which is critical in this case, for it is Cohen's equitable interest in the mortgage which is sought to be subjected to the Government's lien here, and to which Fontainebleau claims a prior right, and not the Trustee's legal interest in said mortgage. The domicile of the Trustee-holder of legal title to the mortgage indebtedness is irrelevant for this purpose of determining whether Cohen's beneficial interest is to be subject to the Government's lien.

So under either the former §6323 or the November, 1966 amendment, the Government's lien based on the second assessment is still prior to Fontainebleau 's interest as a judgment lien creditor and its later interest as a purchaser.

Even assuming Fontainebleau 's premise that the Government had to record its lien on Cohen's beneficial interest in said mortgage in Palm Beach County , where the Trustee resides, Fontainebleau must still be subordinated to the Government lien.

Until Fontainebleau obtained its judgment against Cohen, it could not assert any priority as against the Government. Even though as a judgment creditor it had an immediate lien on Cohen's real property located in Florida, §55.08, Florida Statutes, it had to take further steps to establish a lien on Cohen's intangible personal property, by bringing an equitable action in the nature of a creditors bill and obtaining a decree therein.

Although §6323 before amendment imposed the notice requirement upon the Government as against a taxpayer's "judgment creditors," the courts had interpreted that language to mean "judgment lien creditors." Determination of whether a creditor attains this status is reached first by reference to state law to ascertain the effect of the judgment as a lien on the taxpayer's property, and then by reference to federal standards to ascertain whether the state-created lien is "choate," specific and perfected for purposes of §6323. United States v. Equitable Life Assurance Society [66-1 USTC ¶9444], 384 U. S. 323 (1966); United States v. Pioneer American Insurance Co. [63-2 USTC ¶9532], 83 S. Ct. 1651 (1964); 9 Mertens §54.42 at pg. 105 and cases cited therein.

The leading case, which led to amendment of the statute to recite the "judgment lien creditor" requirement is Fore v. United States [65-1 USTC ¶9101], 339 F. 2d 70 (5th Cir. 1964). Fore had obtained a Texas judgment, which under Texas law entitled him to a lien on the debtor's Texas real estate but not to a lien on the debtor's personalty located in Texas . Inasmuch as under Texas law, Fore had no possessory lien, attachment lien or execution lien on the debtor's personalty, his lien was not choate in the Federal sense.

Similarly, under Florida law, Fontainebleau 's judgment on the note constitutes a lien against Cohen's realty located in Florida . However, a judgment at law is not a lien on land to which the judgment debtor has no legal title. Equitable interests in property are ordinarily not subject to levy and sale under writ of execution in Florida ; they must either be reached by supplemental proceedings or by creditors suit. Huttig v. Hoffman, 9 So. 2d 506 ( Fla. 1942). Furthermore, a mortgage on real estate, being a contract lien on the land, is not subject to levy and sale under writ of execution, and must likewise be reached by supplemental proceedings or by creditor's suit. Evins v. Gainesville National Bank, 85 So. 659 ( Fla. 1920); Ratliff v. Nowery, 136 So. 895 ( Fla. 1931). Under Federal concepts a lien is not perfected if its existence, amount or enforcement is contingent upon the outcome of a suit. United States v. Acri [55-1 USTC ¶9138], 348 U. S. 211; United States v. Security Trust and Savings Bank [50-2 USTC ¶9492], 71 S. Ct. 111 (1950).

State-created liens are perfected or choate for priority purposes when the identity of the lienor, the property subject to the lien, and the amount of the lien are established. United States v. Pioneer American Insurance Co. [63-2 USTC ¶9532], 83 S. Ct. 1651 (1964); Regulations §301.6323(1)(a)(2). Whether Fontainebleau 's judgment on the note against Cohen constituted a lien on his beneficial interest in said mortgage was not determined under state law until Fontainebleau obtained its decree in its Citrus County creditors suit. It was only when that decree was entered that the property subject to Fontainebleau's judgment lien was determined, and thus it was only when that decree was entered that Fontainebleau's judgment became choate in the Federal sense and Fontainebleau became a judgment lien creditor for purposes of §6323. This was on May 18, 1966 and the Government had previously recorded its notice in Palm Beach County on December 17, 1965 .

Subject to the §6323 notice requirement, the transfer of property subject to a tax lien subsequent to the attachment of that lien does not affect the tax lien, for it is the very nature and essence of a lien that no matter into whose hands the property goes, it passes cum onere. United States v. Bess [58-2 USTC ¶9595], 78 S. Ct. 1054 (1958). Michigan v. United States [43-1 USTC ¶9225], 63 S. Ct. 302 (1943). The taxpayer's lien liability is based upon the Government's claim on the property of the taxpayer until the tax debt is discharged and the property passes into the hands of a subsequent party subject to the lien regardless of the transferee's status as a creditor or purchaser. Exhaustion of remedies against the taxpayer and the taxpayer's insolvency or solvency are irrelevant in a proceeding to enforce a Government tax lien. United States v. Hoper [57-1 USTC ¶9508], 242 F. 2d 468 (7th Cir. 1957). So the transfer of Cohen's equitable interest in said mortgage to Fontainebleau by judicial sale after the tax lien based on the second assessment attached thereto did not affect the already established priority of the federal tax lien.

The United States may be named a party in a state mortgage or lien foreclosure suit. However, if the Government is not made a party to a suit concerning property which is subject to an income tax lien, then

. . . a sale to satisfy a lien inferior to one of the United States shall be made subject to and without disturbing the lien of the United States, unless the United States consents that the property may be sold free of its lien and the proceed divided as the parties may be entitled. 28 U. S. C. §2410.

In the instant case, the Government gave no such consent to the sale following Fontainebleau 's suit in the Citrus County Circuit Court, so that the sale was subject to the Government's lien.

III. Marshaling Assets

By way of counterclaim, Fontainebleau has asked the Court to marshal Cohen's other assets and use Cohen's other assets to satisfy the Government's tax lien, leaving Cohen's interest in the Myers-Middleton mortgage to the Fontainebleau .

The equitable doctrine of marshaling rests on the principle that a creditor having two funds to satisfy his debt, may not by his application of them to his demand, defeat another creditor who may resort to only one of the funds. Meyer v. United States [64-1 USTC ¶9111], 375 U. S. 233 (1963).

In United States v. Pollack, a New York District Court did use a marshaling type approach where two sources existed for satisfaction of a tax lien and a junior creditor had resort to only one of those sources. The Court stayed the lien foreclosure proceedings directed at the assets which was subject to the lien of the junior creditor pending the outcome of other Government lien foreclosure proceedings directed at the taxpayer's other assets.

The Supreme Court has not yet been faced with a case in which marshaling was sought against the federal government in an income tax case, although it was asked by the Government to apply the doctrine in Meyer v. United States, supra.

In Meyer, the Government had sought to impose and foreclose a tax lien upon the proceeds of life insurance policies which insured the life of the taxpayer. A bank had a senior lien on the entire proceeds of the policies, while the Government's tax lien attached only to the cash surrender value of the policies, subject to the bank's claim. The Government invoked the doctrine of marshaling assets, asking the Court to satisfy the tax lien from the cash surrender value and the bank's claim from the remainder of the proceeds.

After citing lower court cases holding that the doctrine will not be applied where state-created exemptions would thereby be destroyed or where one of the funds is exempt under state law, the Supreme Court adopted the state rules and refused to extend the doctrine to this situation. New York has a statute exempting insurance benefits of a widow from the claim of her husband's creditors, so that the proceeds other than the cash surrender value were not subject to the tax lien. The Supreme Court refused to enlarge the statutory lien by application of the doctrine of marshaling assets.

Lower federal courts have been confronted with situations where creditors of the taxpayer have invoked the doctrine, and have reached varying results. The Second Circuit has refused to subject the Government to a requirement that it marshal assets in favor of junior lienors because "this would create an extreme burden on collection of revenue, unauthorized by statute." United States v. Herman [63-1 USTC ¶9135], 310 F. 2d 846 (2nd Cir. 1962).

The Eighth Circuit adopted a similar position in United States v. Stutsman County Implement Co. [60-1 USTC ¶9224], 274 F. 2d 733 (8th Cir. 1960). It did not find in any of the cases cited by the creditor-appellee a holding that the Court may discharge a valid tax lien imposed by the statute merely because it appears to the Court that the existence of the lien bears harshly on those who have dealt with the taxpayer in disregard of the lien.

A district court, interpreted a Supreme Court per curiam reversal as disallowing the doctrine of marshaling assets, and therefore refused to apply it upon remand of the case. United States v. Wintner [64-1 USTC ¶9168], 84 S. Ct. 451 (1964); on remand [65-2 USTC ¶9642], 247 F. Supp. 47 ( Ohio 1964). Mertens has also noted that the Government is not required to seek its taxes from any particular source. 9 Mertens §54.52 at p. 161.

Refusal to apply the doctrine is based upon construction of the tax lien statutes in the following manner. The statute creates the tax lien and prescribes its duration. After the notice has been duly given, the power of the Court to determine the rights of the parties in respect to the lien is limited by statute. There is no statutory authority conferred on the Court to discharge or terminate the lien already attached to specific property without satisfaction of the tax or exhaustion of the property. The Court's usual equity powers are said to be limited by the special statutory provisions of §6325 regarding discharge of tax liens, which provisions make no mention of discharge by marshaling other assets of the taxpayer. That rationale is analogous to a similar refusal to apply the doctrine in levy situations.

This Court finds the line of cases refusing to apply the doctrine of marshaling assets to be more convincing. This is especially so in view of the equities appearing in the instant case.

Before it obtained the final judgment in its creditor's suit, Fontainebleau stood as any other judgment creditor and could attempt to execute on or reach any of Cohen's assets not exempt by state statute just as it now wants the Government to do. It chose to reach for the beneficial interest which is the subject of this lawsuit. In so doing, it chose not to join the Government as a party defendant, as it could have under 26 U. S. C. §2410. If Fontainebleau had joined the Government as a defendant in its suit, this controversy would have been dsposed of without further adieu.

When the Government attempted to intervene in the creditor's suit, Fontainebleau , through its attorney, stated to that Court:

We did not adjudicate the Government's rights and no effort to adjudicate the Government's rights was made and the final decree in no way affects the Government's rights. They have lost nothing by the sale we are going to make and I see that they have no standing in this Court, even if there has been a final decree which forecloses them out . . ..

It again reiterated this position in its Memorandum Reply herein filed on March 2, 1967 , in response to Cohen's Motion to Dismiss Fontainebleau's Counterclaim. It states that the State Court denied the Government's petition to intervene on two theories:

1. The United States claimed to have a first lien in its petition to intervene on the equity created by the Middleton agreement. If this were true, the State Court felt that the foreclosure by the Fontainebleau Hotel would not affect the Government.

2. If the Government's lien was inferior and it had not been made a party to the foreclosure proceedings, it was still free to maintain a suit to test the priority of its claim and that of the Fontainebleau Hotel by an independent proceeding.

However, now Fontainebleau attempts to use its judgment and purchase obtained on the above representation to take a contradictory position. In effect it is asking this Court to consider the Citrus County proceedings as going to the merits of the Government's claim. Furthermore, as a general creditor of Cohen, Fontainebleau may still try to reach Cohen's other assets, just as may the Government. Thus there is no reason to apply the quitable doctrine of marshaling assets, for Fontainebleau is not a creditor who has resort to only one of the funds available for satisfaction of the Government's claim--it can resort to the same funds which the Government may attempt to reach. By reason of the foregoing, this Court will not require the Government to satisfy its tax lien from other assets the taxpayer may own.

IV. Estoppel of Judgment

Finally, Fontainebleau contends that the Government is estopped to bring this action by virtue of the final judgment and denial of its petition for intervention in the creditor's suit, which the Government has failed to appeal.

In order for an estoppel by judgment to arise, there must be a final judgment or decree rendered on the merits, which will be conclusive of the rights, questions and facts, the determination of which was necessary to the judgment rendered. A judgment or decree rendered on any grounds which do not involve the merits of the action may not be used as the basis for the operation of this doctrine. Armstrong v. Manatee County , 49 Fla. 273, 37 So. 938 ( Fla. 1905); Tilton v. Horton, 103 Fla. 497, 137 So. 801 ( Fla. 1931); Universal Construction Co. v. Ft. Lauderdale , 68 So. 2d 366 ( Fla. 1953).

As Fontainebleau itself admitted and even argued as a basis for denial of leave to intervene, the Citrus County Circuit Court's denial of the Government's petition was not an adjudication of the merits of its claim.

The final judgment rendered by the Citrus County Circuit Court cannot estop the Government to pursue its claim because the Government was not a party to that lawsuit nor is it privy to any party to the lawsuit.

As Fontainebleau contended in the argument on the Government's petition, a mortgagee is not bound by any judgment or decree rendered in a suit to which it was not made a party, where its interest antedates the action. Logan v. Stieff, 36 Fla. 473, 18 So. 767; Stokely v. Conner, 80 Fla. 89, 85 So. 678.

If the Government had been permitted to intervene, it would have been bound, but even the right to intervene does not subject one to the doctrine of estoppel by judgment. Merriman v. Lewis, 141 Fla. 832, 194 So. 349 ( Fla. 1940). Thus, no estoppel arises by virtue of either the denial of the Government's petition or the final judgment in the Citrus County creditor's suit.

V. Release

Although defendant Fontainebleau has alleged the defense of a release of the Government's lien in its answer, it has not submitted anything in support thereof in response to the Government's Motion for Summary Judgment. When such a motion is made and supported, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in Rule 56, must set forth specific facts showing that there is a genuine issue for trial. Rule 56(e), Federal Rules of Civil Procedure. The Government has effectively denied any release of this lien by affidavit of the District Director of the Internal Revenue Service at Jacksonville , and Fontainebleau has failed to meet its burden. It cannot under the rules rest on its naked allegation to attempt to create a fact issue.

THEREUPON, there being no genuine issue of any material fact, it is ORDERED and ADJUDGED as follows:

The Government's Motion for Summary Judgment be and the same is hereby granted. However, this judgment is limited to a determination that the Government's tax lien on Cohen's beneficial interest in the Myers-Middleton mortgage is prior to the Fontainebleau 's claim as Cohen's creditor and purchaser of said property.

 

 

[73-1 USTC ¶9474]William Kroiz, individually and t/a Kroiz Brothers et al., Plaintiffs v. Interpleaded Fund of $10,917.40, Defendant

U. S. District Court, East. Dist. Pa., Civil Action No. 72-877, 5/17/73

Tax liens: Property subject to: Contractor's rights: Place of filing.--A federal tax lien that was filed prior to several other creditors' liens was entitled to priority to a fund held by the owner of certain buildings for wages due a contractor that had defaulted on its contracts to improve and alter the buildings. The contractor had property rights in the fund to which a lien could attach. Moreover, the lien was filed in the county in which the contractor's principal executive offices were located, which was the correct place for filing.

Irwin S. Lasky, Philadelphia, Pa., Gerald S. Segal, Segal & Weiss, Philadelphia, Pa., Harris J. Sklar, Gross & Sklar, Philadelphia, Pa., Herbert Pressman, Philadelphia, Pa., Anthony J. Cimino, Third Floor, Philadelphia, Pa., William J. Moses, Philadelphia, Pa., for Lincoln Bank, for plaintiffs. Carl J. Melone, U. S. Attorney, Henry J. Horstmann, Ass't U. S. Attorney, Philadelphia, Pa., for defendant.

Memorandum Opinion and Order

VANARTSDALEN, District Judge:

Determination of this interpleader action depends on the order of priority of liens attaching to funds retained by an owner after default by a general contractor and completion of the contract by the owner. The Internal Revenue Service filed notices of tax liens in Montgomery County , Pennsylvania , the claimed domicile of the defaulting contractor. Judgment creditors of the contractor issued executions, and garnished the funds in the hands of the owner located in Philadelphia County .

The Philadelphia Housing Development Corporation (PHDC), as owner, entered written contracts with Tracanna, Incorporated (Tracanna) as general contractor, to improve and alter certain buildings owned by PHDC in Philadelphia County , Pennsylvania . Tracanna defaulted. PHDC completed the contract, and after deducting these completion costs retained the balance of the contract price. Kroiz Brothers, a subcontractor, obtained a judgment in Montgomery County against Tracanna, issued execution and named PHDC as garnishee. PHDC filed answers to interrogatories in attachment stating that it held funds due Tracanna upon completion of the contracts.

PHDC, claiming no interest in the fund, filed a petition to pay the balance of funds, less its costs, into the Court of Common Pleas of Philadelphia County and be discharged, upon all the claimants, including IRS, being interpleaded. The petition was granted on October 4, 1971 . The United States on behalf of IRS removed the case to this court pursuant to 28 U. S. C. §1441 on May 4, 1972 . Both the United States and the Lincoln National Bank have moved for summary judgment. All claimants resist the government's motion for summary judgment. The balance of the fund is approximately $10,600.00.

[Claimants]

The interpleaded claimants to fund are:

1. IRS. It filed notices for tax liens on October 1, 1970 in accordance with 26 U. S. C. §6323 and the Act of December 7, 1965, P. L. 1036, §1, of the Commonwealth of Pennsylvania, 74 P. S. §156-1 in the Prothonotary's Office of Montgomery County, Pennsylvania, against Tracanna for unpaid Withholding and FICA taxes for the first and second quarters of 1970. If these liens give IRS first claim on the fund it would completely exhaust the fund. Therefore, although later liens were filed for subsequent unpaid taxes due IRS, they need not be considered.

2. Kroiz Brothers, a subcontractor. It filed action against Tracanna in Montgomery County , Pennsylvania , obtaining a judgment thereon in the approximate sum of $5,100 on December 16, 1970 . Execution issued on December 18, 1970 , and PHDC was named as garnishee and the funds in its hands due Tracanna were attached. These funds are the subject matter of the interpleader action.

3. Lincoln National Bank. On August 26, 1970 , it lent money to Tracanna for Tracanna's general business operations, obtaining a judgment note as security in the sum of $4,312.50. Judgment was entered on the note in Philadelphia County on December 30, 1970, and execution was issued thereon, again naming PHDC as garnishee and attaching the funds in its hands due or to become due Tracanna.

4. Diamond Lumber Company, Inc.; Circle Heating and Air-Conditioning Company; Empire Plumbing and Heating Co. These claimants were subcontractors of Tracanna on the contracts that Tracanna had with PHDC. Their respective claims are $229.59, $1,200 and $1,100.00. They hold no judgment or other security. They have made no apparent attempt to file mechanic's liens. The contracts between PHDC and Tracanna contained express waivers of the right to file mechanic's liens by either the general contractor, or any subcontractor, workman or materialman.

5. Commonwealth of Pennsylvania . The Department of Labor and Industry of the Commonwealth of Pennsylvania filed a lien on March 2, 1971 in Philadelphia County , Pennsylvania , against Tracanna for unpaid contributions due the Pennsylvania Unemployment Compensation Fund for the first and second quarters of 1970 in the approximate sum of $1,500.00. Execution issued on May 25, 1971 , again naming PHDC as garnishee and attaching the funds in its hands. Later liens were filed on April 8, 1971 for unpaid contributions due for the third and fourth quarters of 1970 in the sum of $246.89, upon which no execution has been issued, or attachment sought.

6. Girard Lumber & Millwork Company, Inc. Although it was named in the interpleader action, it filed no claim, and judgment of default was entered against it.

[Tax Lien]

From the foregoing it is clear that the IRS notice of lien filed against Tracanna in Montgomery County, Pennsylvania, was first in time, and, therefore, if it thereby created a lien against the funds then held by PHDC, the IRS would be entitled to the entire interpleaded fund. This question of necessity resolves itself upon determining the property rights, if any, which Tracanna had to the fund.

26 U. S. C. §6321 provides in substance that if any taxpayer fails to pay any delinquent federal tax, after demand for payment, the amount of the tax including interest, penalties and costs "shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."

[Place of Filing]

To make such a lien as provided by 26 U. S. C. §6321 valid as against purchasers, holders of security interests, mechanics' lienors, and judgment lien creditors, notice of such lien must be filed in accordance with 26 U. S. C. §6323(f). Insofar as applicable to the facts of this case, the notice of lien as to personal property, whether tangible or intangible, must be filed "in one office within the State, . . . as designated by the laws of such State, in which the property subject to the lien is situated." (26 U. S. C. §6323(f)(1)(A)(ii)). All personal property is deemed, for purposes of the Act, to be situated at the residence of the taxpayer at the time of the filing of the notice of the liens. In the case of a corporation, its residence is "deemed to be the place at which the principal executive office of the business is located." (26 U. S. C. §6323(f)(2)). The Uniform Federal Tax Lien Registration Act, adopted by Pennsylvania (Act of Dec. 7, 1965, P. L. 1036; 74 P. S. §156-1 et seq.), provides that the notice as to all personal property shall be filed in the county of the domicile of the taxpayer.

There can be no doubt on this record that the residence, domicile and principal executive offices of Tracanna were located at 3339 Huntingdon Pike, Huntingdon Valley, Pennsylvania, which I will take judicial notice to be located in Montgomery County, Pennsylvania. The claimants, Kroiz Brothers, Lincoln National Bank, Empire Plumbing and Heating Company have all filed pleadings in this or related actions giving the address of Tracanna as Huntingdon Valley , Pennsylvania . The judgment note executed by Tracanna to Lincoln National Bank lists the address of Tracanna also as Huntingdon Valley . The contract between Tracanna and PHDC also utilized the address of 3339 Huntingdon Valley , Pennsylvania .

Consequently, the notice of the federal tax lien having been validly filed in the County of the principal executive office of Tracanna on October 1, 1970, such lien took effective priority as of that date as to all personal property, tangible and intangible, of Tracanna, wherever such property was located. The lien was effective as to all personal property and rights to personal property belonging to Tracanna. The sole issue therefore is whether the fund held by PHDC (and now the interpleaded fund) constitutes personal property, or rights to personal property, either tangible or intangible, belonging to Tracanna. If it does, then clearly the United States is entitled to the entire fund and no further inquiry need be made.

[Status as "Property"]

The contracts between PHDC and Tracanna ¹ provided that upon default by Tracanna, PHDC had two alternative courses of action. It could "make good such deficiencies, deduct the cost thereof from any payment then or thereafter due" Tracanna. It also could terminate the contract, take possession of the properties and finish the work by whatever method it deemed expedient. "In such event, the contractor [Tracanna] shall not be entitled to receive any further payment." If PHDC followed the latter procedure, which it clearly had the right to do, then Tracanna had no property interest or right to property in any balance of money otherwise due under the contract. Atlantic Refining Co. v. Continental Casualty Co. [60-1 USTC ¶9413], 183 F. Supp. 478 (W. D. Pa. 1960). Conversely, if PHDC elected the option to "make good the deficiencies, deduct the cost thereof from any payment then or thereafter due", Tracanna had a property interest in the balance of the funds.

PHDC clearly elected not to seek the forfeiture. In the interpleader proceedings in State Court, PHDC expressly disclaimed all interests in the balance of the funds. In its memorandum in support of the petition to interplead, PHDC stated:

The instant matter involves a claim arising from work and material furnished by plaintiff subcontractor [KROIZ] to defendant prime contractor [TRACANNA] on premises belonging to garnishee [PHDC]. Upon default by defendant contractor, garnishee was obliged to complete construction and, having done so, holds the remainder of a retention fund whichn [sic] otherwise would have been due defendant contractor but for its default.

Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509 (1960), makes clear that determination of whether the taxpayer has any rights to property upon which the lien can attach depends on State law, Federal law determining the priority of the competing liens against the "property." United States v. Durham Lumber Co. [60-2 USTC ¶9539], 363 U. S. 522 (1960), decided the same day as Aquilino, concluded that under the applicable State law, the subcontractors "have a direct, independent cause of action against the owner to the extent of any amount due under the general construction contract, and any money owed by the owner under the construction contract must first be paid to satisfy subcontractors' claims of which the owner has notice." Id. 525. In United States v. Chapman [60-2 USTC ¶9667], 281 F. 2d 862 (10th Cir. 1960), the contractor was not entitled to payment until he supplied proof of payment of labor and materials. The Court there determined that such a contingent right was not a "right to property," in the case where there remained unpaid laborers and materialmen, who under Oklahoma State law had an equitable right to secure payment of the fund held by the owner.

In In re Halprin [60-2 USTC ¶9564], 280 F. 2d 407 (3rd Cir. 1960), Judge Hastie indicated that if the competing claimants could establish rights as a third-party beneficiary, with a direct cause of action against the holder of the fund, their rights would defeat a federal tax lien filed against the contractor who would otherwise be owed the fund. The Court there held that a lending creditor who took an assignment from a contractor of all future payments due for work yet to be done by the contractor, would have a superior right to a subsequently filed federal tax lien, because the contractor acquired no interest in the funds thereafter to become due.

In each of the cited leading cases, it is apparent that the competing creditors were able under State law to defeat the federal tax lien because they held a direct, independent claim against the party owing the fund, which claim was superior to that of the taxpayer to the fund. None of the competing creditors in this case make, nor indeed can they make, a direct claim against PHDC. The subcontractors' only rights would be as mechanics' lienors, but their rights were expressly waived in the contract between PHDC and Tracanna, which waiver under State law is valid. The subcontractors' only claims to the fund are by reason of the debt owed by and claimed through Tracanna, the taxpayer. The right comes through to them impressed with the federal tax lien against Tracanna.

As clear proof of the derivative nature of their claims, Kroiz Brothers issued execution against Tracanna and attached the funds in the hands of PHDC, as garnishee. Since PHDC owed no direct obligation to Kroiz Brothers, the money could be obtained only because PHDC owed the money to Tracanna, which PHDC admitted in answers to interrogatories in attachment and its petition for interpleader.

Similarly Lincoln Bank claimed the funds in PHDC hands by attachment on its execution against Tracanna. Lincoln Bank did not obtain any assignment of funds to be paid to Tracanna by PHDC as security for its loan, which conceivably could have brought it within the rule of In Re Halprin, supra.

It is unnecessary to decide whether a "judgment lien creditor" would include under Pennsylvania law one who holds a judgment but has issued no execution, as to personal property. See Corigliano v. Catla Const. Co. [64-2 USTC ¶9657], 231 F. Supp. 245 (S. D. N. Y. 1964), decided under New York law; Dugan v. Missouri Neon and Plastic Advertising Co. [71-1 USTC ¶9241], 334 F. Supp. 1222 (W. D. Mo. 1971), decided under Missouri law. In the present case every judgment was filed of record, either in Montgomery County or Philadelphia County, subsequent to the filing of the notice of the federal tax lien, and would, therefore, be inferior to the federal tax lien by express terms of 26 U. S. C. §6323.

As to the liens of the Commonwealth of Pennsylvania , the applicable State statute gives a priority of lien only from the date of entry of the lien which was on March 2, 1971 . Act of December 5, 1937 , P. L. 2897, 43 P. S. §788.1. In any event the Commonwealth's lien would attach to personal property only from the date of execution. Ersa, Inc. v. Dudley [56-2 USTC ¶9621], 234 F. 2d 178 (3rd Cir. 1956).

[Conclusion]

Accordingly, in this case, I conclude that Tracanna did have a "right of property" to the balance of funds held by PHDC after PHDC completed the contract and deducted its costs therefrom. The federal tax lien filed in Montgomery County on October 1, 1970 , attached to all of the personal property and rights to personal property, tangible and intangible of Tracanna. That lien was the first in time of all liens involved in this action that attached to the fund. The statutory lien in this action adopts the common law principal that "a prior lien gives a prior claim, which is entitled to prior satisfaction out of the subject it binds. . . ." Rankin v. Scott, 12 Wheat. 177, 6 L. Ed. 592 (1827) cited in Ersa, supra, at 181.

Order

AND NOW, this 17th day of May, 1973, judgment is entered in favor of United States, and it is directed that the balance of the interpleaded fund be first applied to the payment of the federal tax liens filed against Tracanna, Incorporated in the Prothonotary's Office of Montgomery County, Pennsylvania, including all interest, penalties and costs properly assessed thereon. It appearing that payment on account of these tax liens will exhaust the funds on hand, no further order will be made as to the priority of the liens.

This order shall be sufficient authority for the Prothonotary of Philadelphia County to pay over the balance of the funds paid into that court to the United States in satisfaction of the judgment.

¹ Both are the same form and contain indentical language insofar as material to this cause of action.

 

 

[77-1 USTC ¶9419]In the Matter of Maring Plumbing and Heating Company, Bankrupt

U. S. District Court, No. Dist. Ill. , West. Div., No. 75-B-807, 3/8/77

[Code Sec. 6323]

Lien for taxes: Priority: State v. federal law.--Properly filed federal tax lien's priority was unaffected by Illinois state law requirement that a security interest in a motor vehicle is perfected by delivering certificate of title to the Secretary of State. The federal tax lien was expressly exempt from this requirement.

Phillip B. Johnson, 205 7th St. , Rockford , Ill. for bankrupt. Samuel K. Skinner, United States Attorney, Chicago, Ill., Scott P. Crampton, Assistant Attorney General, Jerome Fink, James W. Littlefield, Department of Justice, Washington, D. C. 20530 for U. S.

Order

GRADY, District Judge:

The court is of the opinion that the validity and priority of the Internal Revenue Service lien is governed by federal law, not state law. The federal law involved is Section 6323(a) and (f) of the Internal Revenue Code which, in substance, provides that such a lien is valid in the case of personal property when notice of the lien has been filed in some office within the state in the manner designated by state law. The question here, therefore, is whether the filing in the office of the Recorder of Deeds was a sufficient compliance with Section 6323(f). We hold that it was. Chapter 82, §66, Ill. Rev. Stat., provides for the filing of Internal Revenue liens in the office of the Recorder of Deeds. The only remaining question is whether motor vehicles are a special case governed by the requirement of §3-202(b) of the Illinois Motor Vehicle Code (Ill. Rev. Stat. Chap. 951/2, §3-202(b), that a "security interest" in a vehicle is perfected by delivering the certificate of title containing the name and address of the lien holder to the Secretary of State. We believe that federal tax liens are expressly exempted from this requirement by the language of §3-201(b) of the Vehicle Code, which states that the Article does not apply to or affect "a lien given by the statute to the United States. . . ." It is apparent that this language should read "by statute" rather than "by the statutes," since the Motor Vehicle Code gives no liens to the United States . The word "the" makes no sense in the context of the statute and its presence is an obvious drafting error. Accordingly, it should be ignored in construing the statute. Ronson Patents Corp. v. Sparklets Devices, 102 F. Supp. 123, 124 (E. D. Mo. 1951).

We conclude, therefore, that the Internal Revenue Service did perfect its lien in the manner required by the applicable federal statute and that the lien takes priority over the lien claimed by appellant. The order of the Bankruptcy Court entered on August 24, 1976 , awarding the sum of $633.74 to the appellee, is reversed. The cause is remanded to the Bankruptcy Court with directions to award that sum instead to the Internal Revenue Service in partial satisfaction of its lien.

 

 

[74-2 USTC ¶9773] United States of America , Plaintiff-Appellant v. Ed Lusk Construction Company, Inc.; City of Muskogee , Oklahoma ; Commercial Bank and Trust Company, Successor in Interest to the Commercial National Bank and Trust Company; James W. Holder, Trustee; and Maryland Casualty Company, Defendants-Appellees

(CA-10), U. S. Court of Appeals, 10th Circuit, No. 74-1125, 504 F2d 328, 10/23/74, Reversing and remanding District Court, 74-1 USTC ¶9225

[Code Sec. 6323]

Liens for taxes: Priority: Constructive knowledge.--Government's tax lien had priority over the bank's security interest in funds of the taxpayer. The bank's interest was not properly perfected since it had failed to file in all required places according to State law. Where interests are not properly perfected, the government is only held to a standard of actual knowledge or reason to have such actual knowledge. Since the government did not have such knowledge of the bank's interest, the government lien prevailed.

Richard A. Pyle, United States Attorney, Edwin L. Gage, Assistant United States Attorney, Muskogee, Okla., Scott P. Crampton, Assistant Attorney General, Gary R. Allen, Meyer Rothwacks, Ernest J. Brown, Jonathan S. Cohen, Daniel F. Ross, Department of Justice, Washington, D. C. 20530, for plaintiff-appellant. Joe H. Kennedy, Kennedy, Kennedy & Wright, 201 Commercial Bank Bldg., P. O. Box 707, Muskogee, Okla., for defendants-appellees.

Before LEWIS, Chief Judge, SETH, Circuit Judge, and CHRISTENSEN ^*, Senior District Judge.

PER CURIAM:

This is an appeal from a judgment of the district court which held that an unperfected security interest had priority over a subsequent valid federal tax lien on the theory of constructive notice on the part of the Government.

The taxpayer, a corporation which kept its business records in Washington County , Arkansas , entered into a contract with the City of Muskogee, Oklahoma, for the performance of certain construction work. The taxpayer assigned its right to be paid under this contract to the predecessor of the Commercial Bank and Trust Company (appellee) as collateral for loans. The Bank attempted to perfect its security interest by filing a financing statement locally in Washington County , Arkansas , but did not file centrally in Little Rock , Arkansas . The Secretary of the Treasury then made demand for taxes, penalties and interest against the taxpayer Lusk, and filed notice of federal tax liens in Washington County , Arkansas . The question of priority between the Bank's security interest and the federal tax liens arose and the Government sued to foreclose its lien as against the defendants-appellees.

Upon stipulated facts the district court found the assignments held by the Bank constituted a security interest, and that to protect this interest against other later lien claimants without notice the Bank was required to file a financing statement in accordance with the provisions of the Uniform Commercial Code as adopted by Oklahoma and Arkansas . The Oklahoma Uniform Commercial Code requires financing statements to be filed in the state where the assignor keeps its records concerning the contract right which is the subject of the security interest. ¹ In this case the taxpayer's records were kept in Washington County , Arkansas . Arkansas law requires financing statements to be filed in the county in which the debtor has its place of business and additionally in the office of the Secretary of State. ² The Bank filed only locally in Washington County . The Government, under 26 U. S. C. §6323, was required to file notice of its tax liens locally in Washington County . ³

Arkansas ' statute provides that when a subsequent lien claimant has knowledge of a prior lien, priority of the earlier lien is not defeated because it was imperfectly filed or was filed in less than all of the places required by statute. ⁴ Though the Bank's interest was incompletely filed, the district court held the Internal Revenue Service had constructive notice of the Bank's interest because it filed in the same location, subsequent to the Bank's filing. Thus it was the lower court's view that the Bank's claim was prior and superior to the Government's tax liens, giving the Bank first right to any funds in the hands of the City of Muskogee due on the Lusk contract. The lower court properly rejected the defendants' contentions that the interest which the Bank held was not a security interest, and, in any event, that mere possession constituted sufficient notice of its claim as to render the imperfect filing immaterial.

We come then to the controlling question whether failure of the Bank to centrally file in the State of Arkansas prior to the time the Government filed its notice of tax liens in Washington County was fatal to the Bank's priority.

The federal tax lien ⁵ came into existence at the time demand was made upon the taxpayer, and the filing of the tax lien notice in accordance with federal statute made it superior to claims under unprotected security interests. ⁶

The Bank did not perfect or "protect" its secuity interest under the Arkansas statute because it did not file centrally as well as locally. The Bank's interest under such circumstance would have been superior to the Government's tax lien only if the Government had knowledge of that interest. ⁷

It is evident that for the purposes of the Code knowledge so far as pertinent here means actual knowledge or reason to have such actual knowledge, not constructive knowledge in any broader sense. ⁸ In this case there was no evidence tending to show that the Government had the requisite knowledge of the Bank's interest in the property, even though it filed its notice in the same location. If as a matter of law persons in the Government's position were charged with constructive knowledge or reason to have knowledge of a security interest filed in only one of two required places, that requirement would be idle, indeed.

The Government therefore had no notice or knowledge of the Bank's interest. Under the basic policy of "first in time, first in right" its perfected tax lien had priority over the Bank's security interest. Cf. United States v. Trigg [72-2 USTC ¶9642], 465 F. 2d 1264 (8th Cir. 1972), cert. denied sub nom., First State Bank of Crossett, Arkansas v. United States, 410 U. S. 909 (1973). Thus the Government has first claim to funds held by the City of Muskogee on the Lusk contract. Richardson v. United States [73-1 USTC ¶9319], 358 F. Supp. 994 (E. D. Ark. 1973).

REVERSED and REMANDED for entry of judgment in harmony with this opinion.

^* Of the District of Utah, sitting by designation.

¹ 12A Okla. Stat. Ann., §9-103(1) "If the office where the assignor of accounts or contract rights keeps his records concerning them is in this state, the validity and perfection of a security interest therein and the possibility and effect of proper filing is governed by this Article; otherwise by the law (including the conflict of laws rules) of the jurisdiction where such office is located."

² Ark. Stat. 1947 Ann. (1961 Addendum), §85-9-401(1) "The proper place to file in order to perfect a security interest is as follows: . . . (c) in all other cases, in the office of the Secretary of State and in addition, if the debtor has a place of business in only one county of this state, also in the office of the Clerk of the Circuit Court and Ex-Officio Recorder of such county. . . ."

³ 26 U. S. C. §6323(f)(1)(A)(ii), (2)(B). ". . . In the case of personal property . . . in one office within the State . . . as designated by the laws of such State, in which the property subject to the lien is situated; or . . . [P]roperty shall be deemed to be situated . . . [at] the place at which the principal executive office of the business is located. . . ."

⁴ Ark Stat. 1947 Ann. (1961 Addendum), §85-9-401(2) "A filing which is made in good faith in an improper place or not in all of the places required by this section is nevertheless effective with regard to any collateral as to which the filing complied with the requirements of this Article [chapter] and is also effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement."

⁵ 26 U. S. C. §6321. ". . . If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."

⁶ 26 U. S. C. §6323(a). ". . . The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary of his delegate." The term "security interest" is self-limiting in view of the definition of 26 U. S. C. §6323(h)(1): ". . . A security interest exists at any time (A) if, at such time, the property is in existence and the interest has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation. . . ."

⁷ Ark. Stat. 1947 Ann. (1961 Addendum), §85-9-301(1). ". . . an unperfected security interest is subordinate to the rights of . . . (b) a person who becomes a lien creditor without knowledge of the security interest and before fore it is perfected. . . ."

⁸ Ark. Stat. 1947 Ann. (1961 Addendum), §85-1-201(25). "A person has 'notice' of a fact when (a) he has actual knowledge of it; or (b) he has received a notice or notification of it; or (c) from all the facts and circumstances known to him at the time in question he has reason to know that it exists.

"A person 'knows' or has 'knowledge' of a fact when he has actual knowledge of it. 'Discover' or 'learn' or a word or phrase of similar import refers to knowledge rather than to reason to know."

 

 

[81-1 USTC ¶9247]Larry D. Brown v. United States of America

U. S. District Court, No. Dist. Ga. , Atlanta Div., C79-2384A, 12/8/80

[Code Sec. 6323]

Tax liens: Validity of: Personalty v. realty: Filing of notice: Georgia law.--A tax lien was valid against an individual who purchased lighting fixtures subject to a tax lien because notice of the lien had been filed in the county where the seller, a corporation, maintained its principal place of business. Under Georgia law the fixtures were personalty, not realty, so notice was filed in the proper county.

V. C. Baker, 125 Trinity Place , Decatur , Ga. 30030 , for plaintiff. William L. Harper, United States Attorney, Barbara A. Harris, Assistant United States Attorney, Atlanta, Ga. 30303, Lenore Distefano, Department of Justice, Washington, D. C. 20530, for defendant.

Order of Court

MOYE, JR., District Judge:

This is a tax recovery suit presently before the Court on cross-motions for summary judgment. The undisputed material facts are brief and uncomplicated.

On March 10, 1977 , the defendant filed a notice of tax lien in DeKalb County , Georgia , for taxes allegedly due the United States by Herman L. Steele Company. That company was a Georgia corporation having its principal office in DeKalb County .

At the time the notice was filed, Herman L. Steele Company owned the parking lot lighting systems at two shopping centers. It leased the lighting systems to the shopping centers in which the systems were respectively situated pursuant to leases which described the lighting systems as personal property. On February 1, 1979 , plaintiff Larry Brown purchased from Herman L. Steele Company the lighting systems and the lessor's interests in the leases, pursuant to lease assignments which expressly conveyed to Brown the rights and responsibilities of Steele as set forth in the leases.

There is no evidence in the record controverting the fact that the lighting systems are forty feet in height and imbedded in pavement. Further, it would be difficult to remove the lights and to do so would damage the shopping center parking lots. Affidavit of Larry Brown ¶3.

The essential question raised by these cross-motions is whether the defendant filed its tax lien notice in such a way as to put plaintiff on effective notice of the lien. To be effective against subsequent purchasers, tax liens on personal property of a corporation must be filed in the county of the corporation's principal office. Ga. Code Ann. §67-2601(b); 26 U. S. C. §6323(a), (f). Tax liens on real property must be filed in the county where the real property lies. Ga. Code Ann. §67-2601(a); 26 U. S. C. §6323(a), (f). Here, the defendant filed the tax lien in DeKalb County as though the lighting systems were personalty rather than in Gwinnett County where the lighting systems are physically located.

The focus thus turns to whether the lights are realty or personalty. According to Ga. Code Ann. §85-105.

Any thing intended to remain permanently in its place, though not actually attached to the land, such as a rail fence, is a part of the realty and passes with it. Machinery, not actually attached, but movable at pleasure, is not a part of the realty. Anything detached from the realty becomes personalty instantly on being so detached.

The Georgia version of the Uniform Commercial Code (UCC) provides further that "goods are 'fixtures' when they become so related to particular real estate that an interest in them arises under real estate law." Ga. Code Ann. §109A-9-313(1)(a). This UCC provision apparently refers back to section 85-105 in the "property" title of the Georgia Code Annotated.

The defendant contends, citing numerous cases, that the agreements designating the lights as personalty are "controlling." The best analysis of the problem before the Court is provided by Judge Quillian in Babson Credit Plan, Inc. v. Cordele Prod. Credit Assoc., 146 Ga. App. 266 (1978). After quoting Code section 85-105, the court noted that the basic issue in determining whether an article of property is considered realty or personalty is whether it "can be removed without essential injury to the freehold, or the article itself . . .." Id. at 268, quoting Wade v. Johnston, 25 Ga. 331, 336 (1858). In addition, the Court must consider the intent of the parties as shown by the contract, and where there is a question of intent, that question is for the trier of fact. 146 Ga. App. at 269, citing, Kirkland v. Morris, 233 Ga. 597, 599 (1975); Sawyer v. Foremost Dairy Products, Inc., 176 Ga. 854, 863 (1933).

In the instant case, where rights of third parties--here the government--are involved, one could logically argue that the intent of the contracting parties should be less significant. That argument seemingly is rejected by Babson, however. In that case, the court considered the intent of the debtor and creditor A to be significant even as between creditor A and creditor B.

The Court believes that the language used by the contracting parties is controlling as to the question of intent. At the time the lights were transferred from Herman L. Steele Company to the plaintiff, and at the time the notice of lien was filed, they were clearly personalty as between the seller and buyer. Thus, Brown was on notice to check the personalty records in DeKalb County . In addition, Brown did not take the fundamental step of obtaining and recording a deed in Gwinnett County, thus further evidencing his recognition of the property as personalty as reflected in the leases and assignments.

Thus, the Court hereby GRANTS the government's motion for summary judgment and DENIES plaintiff's motion for summary judgment.

 

 

[53-2 USTC ¶9481]Grand Prairie State Bank, Appellant v. United States of America , Appellee

(CA-5), In the United States Court of Appeals for the Fifth Circuit, No. 14325, 206 F2d 217, June 30, 1953

Appeal from the United States District Court for the Northern District of Texas.

Tax lien upon personal property: Place of recording.--A tax lien upon two finger rings owned by taxpayers was filed in the county wherein they resided. Thereafter, the rings were pledged to a bank in another county. There was no requirement that the tax lien be filed also in the county of the situs of the property. Accordingly, the Government's liens for taxes were superior to the rights of the bank.

Archie C. Price, Grand Prairie, Tex., and John A. Erhard, Dallas, Tex., for appellant. Carolyn R. Just, Special Assistant to the Attorney General, Ellis N. Slack, Acting Assistant Attorney General, and Charles S. Lyon, Assistant Attorney General, all of the Department of Justice, Washington, D. C., and William Cantrell, Jr., Assistant United States Attorney, Dallas, Tex., for appellee.

Before HUTCHESON, Chief Judge, and RUSSELL and STRUM, Circuit Judges.

RUSSELL, Circuit Judge:

Notices of tax liens in the total amount of $172,242.97 were filed by the Collector of Internal Revenue for the Second District of Texas with the County Clerk , Tarrant County , Texas , against H. L. Stripling and his wife, Billa I. Stripling, residents of Tarrant County , on April 6, 1949, May 19, 1951 and November 9, 1951. ¹ On January 7, 1952, appellant, in the due course of its business at Grand Prairie, Dallas County, Texas, loaned to H. L. Stripling the sum of $5,050 and accepted his promissory note in that amount payable in 60 days. Contemporaneously with this transaction Stripling delivered to appellant one man's diamond ring with a stone weighing 5.26 carats and one woman's diamond ring with a center stone weighing 3.5 carats, having an aggregate value of approximately $10,000, as collateral security for the loan. He also executed a separate collateral agreement and a chattel mortgage covering the rings as evidence of the pledge.

The Collector, acting by and through his deputy collector proceeding under §§ 3690 3710(a) of the Internal Revenue Code, ² caused to be served upon G. H. Turner, appellant's president, notices of levy making demand upon appellant to deliver to him all property and rights to property in its possession belonging to the Striplings. These notices were served on February 8, and on February 11th a final notice and demand was served upon appellant with respect to each of the taxpayers. Upon appellant's failure to respond to the notices of levy and after Mr. Turner orally notified the deputy collector that appellant would not make delivery of the rings unless compelled to do so by an order of the court, this action was instituted by the United States ³ against the taxpayers and appellant, praying that its liens for taxes be enforced against the rings; that all claims to and liens upon the rings be determined and that they be ordered sold for the payment of such liens so adjudged; and that the United States have judgment against appellant in a sum equal to the value of the rings. The taxpayers failed to appear and answer the complaint. Appellant answered and denied that it was liable to the United States and that the liens for taxes were valid as against its claim against the rings. The substance of appellant's defenses was that it acquired its lien upon the property for valuable consideration in good faith without notice, actual or constructive, of the liens for taxes, therefore, such liens are inoperative as to its lien for the reason that the Collector failed to file the notices of tax liens in Dallas County where appellant has its place of business and where the property was located on January 7, 1952.

The trial court held that the liens of the United States, having been filed for record in the county of the taxpayers' residence prior to the date appellant acquired its lien against the property, are superior to appellant's lien, and ordered that the rings be delivered to the United States Marshal to be sold and that the proceeds of such sale be applied as a credit against the tax assessments.

[Opinion]

When a taxpayer fails or refuses to pay taxes due the United States after demand for payment has been made, such taxes, together with interest, penalty and other additions, shall be a lien upon all property and rights to property belonging to such taxpayer. ⁴ Unless another date is specifically fixed by law, the lien arises at the time the assessment list is received by the collector. ⁵ However, such lien is not valid as against any mortgagee, pledgee, purchaser or judgment creditor until notice thereof has been filed by the collector in the office in which the filing of such notice is authorized by the law of the state in which the property subject to the lien is situated. ⁶ After notice of lien has been filed such lien is enforceable against any mortgagee, pledgee, purchaser or judgment creditor of the taxpayer whose interest in, or claim against, property or rights to property belonging to the taxpayer arose subsequent to the filing of the notice of lien. ⁷ As we said in United States v. Peoples Bank, 5 Cir., 197 Fed. (2d) 898, 899 [52-2 USTC ¶9407], "The recording of such a lien has no retroactive effect, but clearly it takes rank as of the time it was filed and is superior to other liens perfected thereafter." It necessarily follows that the proper filing and recordation of notice of lien as contemplated by the statute is notice to all the world of the lien of the United States for taxes.

Appellant contends, however, that although the notices of liens were properly filed in Tarrant County , the domicile of the taxpayers, the failure of the Collector to file these notices for record in Dallas County prior to the time it acquired its claim against the rings operates to subordinate the liens of the United States to its lien. Relying upon 26 U. S. C. A. §3672(b)(1), ⁸ appellant contends that its transaction with Stripling "comes within the protective provisions of the law by intendment and analogy." Further, it is contended that the court erred in decreeing a foreclosure of the tax liens, in ordering that the rings be sold and in directing that that the proceeds of the sale be delivered to the Collector to be applied as payment on the tax assessments.

[Transitory Nature of Property]

It is argued that because of the transitory nature of the property in question, and of personal property in general, the notices of tax liens recorded in Tarrant County are ineffective to give constructive notice to a mortgagee or pledgee that acquired its claim against the property after it was removed from that county. Appellant recognizes the general principle that the situs of personal property is regarded as being the same as the domicile of its owner, but urges that when the property was reduced to its possession in Dallas County it acquired a situs in that county and the failure of the United States to have its liens recorded there defeats its claim. The statute, however, does not require a tax lien to be filed in every county to which personal property may be carried in order to be enforceable against a subsequent mortgagee or pledgee. The requirement that notice of lien be filed in the office in which the filing of such notice is authorized by the law of the state in which the property subject to the lien is situated is satisfied, so far as is pertinent here, when such notice is filed in the county of the taxpayer's domicile. See Investment & Securities Co. v. United States , 9 Cir., 140 Fed. (2d) 894 [44-1 USTC ¶9210]. It is the transitory nature of personal property which requires the application of this rule. To hold otherwise, would be to overlook the practical necessities of the situation and would require the Collector to file tax liens in every jurisdiction to which the taxpayers may at any time remove the property. We do not think this result was intended by the statute, nor do the laws of Texas relating to the recording of liens against personal property require a different result. Article 5490, Vernon 's Civil Statutes of Texas ; Trinity State Bank v. Bowie Contracting Co. , 232 S. W. (2d) 863.

Appellant's contention that its transaction with Stripling falls within the securities exemption of the statute is likewise without merit. A security, as defined by the statute, ⁹ clearly does not include diamond rings.

It follows that since the trial court properly held that the liens of the United States were paramount, it did not err in decreeing a foreclosure of the liens against the property in question and in ordering it sold in payment of the tax assessments. 26 U. S. C. A. §3678.

Judgment affirmed.

¹ These notices, representing tax assessments made against the taxpayers and evidencing a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to the Striplings, were filed pursuant to 26 U. S. C. A. §3672(a)(1) and were recorded as provided by Article 6644, Vernon's Civil Statutes of Texas.

² 26 U. S. C. A. §§ 3690 and 3710(a).

³ Apparently under Title 26, U. S. C. A. §§ 3678(a) and 3710(b).

⁴ 26 U. S. C. A. §3670.

⁵ 26 U. S. C. A. §3671.

⁶ 26 U. S. C. A. §3672(a)(1). In the event the state in which the property is situated has not by law authorized the filing of such notice, provision is made in 26 U. S. C. A. §3672(a)(2) for the filing of notice of lien in the office of the clerk of the United States District Court for the judicial district in which the property subject to the lien is situated.

⁷ United States v. Phillips, 5 Cir., 198 Fed. (2d) 634, 636 [52-2 USTC ¶9421].

⁸ "Exception in case of securities.--Even though notice of a lien provided in section 3670 has been filed in the manner provided in subsection (a) of this section . . . the lien shall not be valid with respect to a security, as defined in paragraph (2) of this subsection, as against any mortgagee, pledgee, or purchaser, of such security, for an adequate and full consideration in money or money's worth, if at the time of such mortgage, pledge, or purchase such mortgagee, pledgee, or purchaser is without notice or knowledge of the existence of such lien."

⁹ 26 U. S. C. A. §3672(b)(2): "Definition of security.--As used in this subsection the term 'security' means any bond, debenture, note, or certificate, or other evidence of indebtedness, issued by any corporation . . ., with interest coupons or in registered form, share of stock, voting trust certificate, or any certificate of interest or participation in, certificate of deposit or receipt for, temporary or interim certificate for, or warrant or right to subscribe to or purchase, any of the foregoing; negotiable instrument; or money."

 

 

[52-2 USTC ¶9565] United States of America v. Howard L. Stripling, Billa Irene Stripling, and Grand Prairie State Bank.

In the District Court of the United States for the Northern District of Texas, Dallas Division., No. 4582--Civil., 06/12/52

Tax lien upon personal property: Personality pledged after lien filed.--A tax lien upon two rings, which were worn by taxpayers, was filed in the county wherein taxpayers resided. Thereafter, the rings were pledged to a bank. The court ordered the bank to turn over the rings for foreclosure sale, and directed that the proceeds be paid to the collector, the value of the rings being substantially less than the taxes due.

William Cantrell, Jr., Assistant United States Attorney, Dallas, Texas; Harold Bacon, Special Assistant to the Attorney General, Washington, D.C., appearing for plaintiff. John A. Erhard, Dallas , Texas , Archie Price, Grand Prairie , Texas , appearing for defendant, Grand Prairie State Bank.

Court's Oral Opinion

 

THE COURT:

I find that the defendants, Striplings, were indebted to the United States by reason of Internal Revenue taxes in sums far in excess of the value of the two rings in controversy here.

That such taxes approximated a total of more than $200,000.00.

That the valuation of the rings is somewhere in the neighborhood of $10,000.00.

That the United States has a lien upon the rings which must be foreclosed. Such lien [was] filed in the county of the residence of defendants Striplings prior to the pledging to the bank in Dallas County .

That the defendants, Striplings, were residents of Tarrant County , Texas , and that the rings were worn on the fingers of those two Striplings.

I direct that the sale be ordered and made by the United States Marshal, and the funds arising from such sale be turned over to the United States for the use of the Collector of Internal Revenue, and that the defendant bank be ordered to turn the rings over for that purpose.

I will ask you to prepare a decree.

Do you wish an exception noted, Mr. Erhard?

MR. ERHARD: Yes, Your Honor, we wish an exception.

THE COURT: All right, an exception will be noted in the decree.