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
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.
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.
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
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
subject to the prior and intervening right of adverse claimants. 11
of Tax Collection 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
Subject to Ownership]
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
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
. 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.
as to Property Situs Unnecessary]
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
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.
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
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
under Title 26, U. S. C. A. Section 3670, 3671 and 3672, Revised
Statutes, Section 3186. 18
judgment is affirmed.
Hereinafter called Magnolia.
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).
Hereinafter called Collector.
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
C. A. Section 3672, which reads in part as follows:
AGAINST MORTGAGEES, PLEDGEES, PURCHASERS, AND JUDGMENT CREDITORS
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.
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
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
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
District of Columbia
, if the property subject to the lien is situated in the
District of Columbia
A banking corporation organized under the laws of the State of
, and doing business in
, Ward County, Texas and hereinafter called Bank.
Title 26 U. S. C. A. Sections 3670, 3671 and 3672, Revised Statutes
3186, as amended.
Cannon v. Nicholas, Collector of Internal Revenue, 80 F. (2) 934
[35-2 USTC ¶9672].
Title 26 U. S. C. A. Section 3670, 53 Stat. 448, which reads as follows:
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."
v. Rosenfield, et al., 26 F. Supp. 433 [39-1 USTC ¶9204].
Exchange National Bank of
v. Davy, et al., 13 F. Supp. 226 [36-1 USTC ¶9053].
Cannon v. Nicholas, Collector of Internal Revenue, supra.
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.
Commissioner of Internal Revenue v. Stephens-Adamson Mfg. Co., 51
F. (2d) 681 [2 USTC ¶787].
Gleason v. Thas, 236
50 F. (2d) 102 [2 USTC ¶754].
C. A., subsection B of Section 3672.
Equitable Life Assurance Society of the
, et al., 29 F. Supp. 179 [39-2 USTC ¶9774].
States v. Rosenfield, et al., supra.
United States of America
, Plaintiff v. Max B. Cohen, et al., Defendants
S. District Court, So. Dist. Fla., No. 66-1496-Civ.-CF, 271 FSupp 709,
[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.
Department of Justice,
, D. C. 20530, Lavinia L. Redd, Assistant U. S. Attorney, Main Post
, 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,
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,
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,
. 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
, 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,
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.)
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
, and from December, 1964 to October, 1965, he was a domiciliary and
. He has never resided in Citrus, Levy or
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
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
April 22, 1965
--Fontainebleau Hotel Corp. recorded that judgment in
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
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
creditors suit, which decree declared
's lien on Cohen's equity in the mortgage indebtedness. Cohen's interest
was ordered to be sold by a special master.
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
beneficial interest in said mortgage was sold at public outcry, pursuant
to the Citrus County Circuit Court final decree. For the price of
purchased Cohen's interest in the mortgage, the purchase price being
applied towards satisfaction of
's judgment against Cohen.
thwarted in its
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.
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
raises the following defenses to foreclosure of the Government's lien:
's lien or interest as purchaser.
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
Release of its claim of lien by the Government.
way of counterclaim,
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
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
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.
law determines whether this interest in "property" or a
"right to property" within the meaning of §6321, and under
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 (
1920); Ratliff v. Nowery, 136 So. 895 (
1931); Thalheimer Bros. v. Tischler, 55
796, 46 So. 514 (
1908). Thus it may be subject to a tax lien.
Priority as Between the Government and
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
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.
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.
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.
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
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
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.
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
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
's obtaining its judgment against Cohen. Thus, the Government's lien,
based on both assessments, is prior to any interest the
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
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
law, a mortgage is a specific lien on property and thus is a chose in
action, Evins v. Gainesville National Bank, 85 So. 659 (
1920); Ratliff v. Nowery, 136 So. 895 (
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
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
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
either the former §6323 or the November, 1966 amendment, the
Government's lien based on the second assessment is still prior to
's interest as a judgment lien creditor and its later interest as
's premise that the Government had to record its lien on Cohen's
beneficial interest in said mortgage in
, where the Trustee resides,
must still be subordinated to the Government lien.
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.
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
323 (1966); United States v. Pioneer American Insurance Co. [63-2
USTC ¶9532], 83
1651 (1964); 9 Mertens §54.42 at pg. 105 and cases cited
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
judgment, which under
law entitled him to a lien on the debtor's
real estate but not to a lien on the debtor's personalty located in
. Inasmuch as under
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.
's judgment on the note constitutes a lien against Cohen's realty
. 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
; they must either be reached by supplemental proceedings or by
creditors suit. Huttig v. Hoffman, 9 So. 2d 506 (
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 (
1920); Ratliff v. Nowery, 136 So. 895 (
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
211; United States v. Security Trust and Savings Bank [50-2 USTC
¶9492], 71 S. Ct. 111 (1950).
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
1651 (1964); Regulations §301.6323(1)(a)(2). Whether
's judgment on the note against Cohen constituted a lien on his
beneficial interest in said mortgage was not determined under state law
obtained its decree in its
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
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
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
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.
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
's suit in the Citrus County Circuit Court, so that the sale was subject
to the Government's lien.
By way of
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
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
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
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
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.
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.
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
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).
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.
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 (
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.
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.
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.
obtained the final judgment in its creditor's suit,
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
C. §2410. If
had joined the Government as a defendant in its suit, this controversy
would have been dsposed of without further adieu.
Government attempted to intervene in the creditor's suit,
, through its attorney, stated to that Court:
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 . . ..
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:
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
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
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
proceedings as going to the merits of the Government's claim.
Furthermore, as a general creditor of Cohen,
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
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.
Estoppel of Judgment
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.
273, 37 So. 938 (
1905); Tilton v. Horton, 103
497, 137 So. 801 (
1931); Universal Construction Co. v.
, 68 So. 2d 366 (
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.
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.
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.
473, 18 So. 767; Stokely v. Conner, 80
89, 85 So. 678.
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
832, 194 So. 349 (
1940). Thus, no estoppel arises by virtue of either the denial of the
Government's petition or the final judgment in the
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
has failed to meet its burden. It cannot under the rules rest on its
naked allegation to attempt to create a fact issue.
there being no genuine issue of any material fact, it is ORDERED and
ADJUDGED as follows:
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
's claim as Cohen's creditor and purchaser of said property.
¶9474]William Kroiz, individually and t/a Kroiz Brothers et al.,
Plaintiffs v. Interpleaded Fund of $10,917.40, Defendant
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.
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.
Opinion and Order
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
, 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 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
. 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
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.
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
on behalf of IRS removed the case to this court pursuant to 28
C. §1441 on
May 4, 1972
. Both the
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.
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.
Brothers, a subcontractor. It filed action against Tracanna in
, 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
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.
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.
. The Department of Labor and Industry of the
filed a lien on
March 2, 1971
, 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
Lumber & Millwork Company, Inc. Although it was named in the
interpleader action, it filed no claim, and judgment of default was
entered against it.
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."
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
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
(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
. The judgment note executed by Tracanna to Lincoln National Bank lists
the address of Tracanna also as
. The contract between Tracanna and PHDC also utilized the address of
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
is entitled to the entire fund and no further inquiry need be made.
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.
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,
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
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
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.
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,
unnecessary to decide whether a "judgment lien creditor" would
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
law; Dugan v. Missouri Neon and Plastic Advertising Co. [71-1
USTC ¶9241], 334 F. Supp. 1222 (W. D. Mo. 1971), decided under
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
, 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).
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
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,
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.
shall be sufficient authority for the Prothonotary of Philadelphia
County to pay over the balance of the funds paid into that court to the
in satisfaction of the judgment.
Both are the same form and contain indentical language insofar as
material to this cause of action.
¶9419]In the Matter of Maring Plumbing and Heating Company, Bankrupt
S. District Court, No. Dist.
, 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.
205 7th St.
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.
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
. 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).
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
United States of America
, Plaintiff-Appellant v. Ed Lusk Construction Company, Inc.;
City of Muskogee
; 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
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.
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
Chief Judge, SETH, Circuit Judge, and CHRISTENSEN *,
Senior District Judge.
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
a corporation which kept its business records in
, 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
, but did not file centrally in
. The Secretary of the Treasury then made demand for taxes, penalties
and interest against the taxpayer Lusk, and filed notice of federal tax
. 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.
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
. 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
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
. The Government, under 26
C. §6323, was required to file notice of its tax liens locally in
' 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
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
We come then
to the controlling question whether failure of the Bank to centrally
file in the State of
prior to the time the Government filed its notice of tax liens in
was fatal to the Bank's priority.
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
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
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.
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
on the Lusk contract. Richardson v. United States [73-1 USTC ¶9319],
358 F. Supp. 994 (E. D. Ark. 1973).
REMANDED for entry of judgment in harmony with this opinion.
Of the District of Utah, sitting by designation.
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."
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. . . ."
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. . . ."
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."
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."
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
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. . . ."
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. . . ."
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.
'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."
¶9247]Larry D. Brown v.
United States of America
S. District Court, No.
, Atlanta Div., C79-2384A,
[Code Sec. 6323]
Tax liens: Validity of: Personalty v. realty: Filing of notice:
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
law the fixtures were personalty, not realty, so notice was filed in the
V. C. Baker,
125 Trinity Place
, 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
This is a tax
recovery suit presently before the Court on cross-motions for summary
judgment. The undisputed material facts are brief and uncomplicated.
March 10, 1977
, the defendant filed a notice of tax lien in
, for taxes allegedly due the
by Herman L. Steele Company. That company was a
corporation having its principal office in
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
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.
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.
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.
Code Ann. §67-2601(a); 26 U. S. C. §6323(a), (f). Here, the defendant
filed the tax lien in
as though the lighting systems were personalty rather than in
where the lighting systems are physically located.
The focus thus
turns to whether the lights are realty or personalty. According to
Code Ann. §85-105.
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.
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."
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
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
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 . .
at 268, quoting Wade v. Johnston, 25
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
App. at 269, citing,
v. Morris, 233
597, 599 (1975); Sawyer v. Foremost Dairy Products, Inc., 176
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.
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
. 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
Court hereby GRANTS the government's motion for summary judgment and
DENIES plaintiff's motion for summary judgment.
¶9481]Grand Prairie State Bank, Appellant v.
United States of America
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
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.
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.
HUTCHESON, Chief Judge, and RUSSELL and STRUM, Circuit Judges.
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
, against H. L. Stripling and his wife, Billa I. Stripling, residents of
, 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.
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
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
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.
taxpayer fails or refuses to pay taxes due the
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
contends, however, that although the notices of liens were properly
, the domicile of the taxpayers, the failure of the Collector to file
these notices for record in
prior to the time it acquired its claim against the rings operates to
subordinate the liens of the
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.
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
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.
, 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
relating to the recording of liens against personal property require a
different result. Article 5490,
's Civil Statutes of
; Trinity State Bank v.
, 232 S. W. (2d) 863.
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.
that since the trial court properly held that the liens of the
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
C. A. §3678.
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.
C. A. §§ 3690 and 3710(a).
Apparently under Title 26,
C. A. §§ 3678(a) and 3710(b).
C. A. §3670.
C. A. §3671.
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.
United States v. Phillips, 5 Cir., 198 Fed. (2d) 634, 636 [52-2
"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
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."
United States of America
v. Howard L. Stripling, Billa Irene Stripling, and Grand Prairie State
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
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,
, Archie Price,
, appearing for defendant, Grand Prairie State Bank.
I find that
the defendants, Striplings, were indebted to the
by reason of Internal Revenue taxes in sums far in excess of the value
of the two rings in controversy here.
taxes approximated a total of more than $200,000.00.
valuation of the rings is somewhere in the neighborhood of $10,000.00.
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
defendants, Striplings, were residents of
, 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?
Yes, Your Honor, we wish an exception.
THE COURT: All
right, an exception will be noted in the decree.