Supplemental Brief — United States v. City of New Britain

fege 2, line 4.

3, line 17.

line 37.

line 44.

lines 56.

ERRATA

"F, Supp. III" should read "F. Supp. 111"

"Littletown" should read "Littlestown"

"F.2d Supp. 64," should read "F.2d 64,"

"Eo. 478," should read "Eq. 487,”

"Samms v. Chicago Title & Trust Co., lll

Not. 2d 172 (349 Ill. App. 413, 1953)"

should read "Samms v. Chicago Title & Trust

Co., 349 Ill. App. 413, 111 N.s. 2d 172

(7953) ."

"F.2d, Supp. 304," should read "¥.2d. 304,"

"Construction 1914-" should read "Con-

struction 914-"

"3670 an 3671," should read "3670 and

3671,"

"Section 1853, 758" should read "Sections

1853, 758"

"ineluctable correct" should read

"ineluctably correct"

"Government' argument" should read

"Government's argument"

"Governments reliance" should read

"Government's reliance"

— and; (3)" should read "liens; and

3)"

"of immediate in-" should read "of

immediate en-"

"provsion" should read "provision"

"unpaid taxs" should read “unpaid taxes"

"misapprehenson" should read

"misapprehension"

"So far as" should read "So far as other"

"lins" should read "liens"

"saving of he" should read "saving of the"

"jurgment" should read "judgment"

"discuseed." should read "discussed."

"Osborn," should read "Osborne,"

"at the tme" should read "at the time"

INDEX

CE OE SN EE TE ocak odor erecacavens dv enawnese

Cees PRM. «ic ce veescevdecvenevessessveveses

Saeey Gh FR 5 4. ds vs cei ees ctpeceedneee ses

APQgument ...... ccc ce ccc cc ccc ec ec cee cece cercscevess

I. Even if the federal liens were superior to the muni-

cipal lens in a hypothetical situation not involving

a mortgage and judgment lien, the disposition of

the proceeds by the Connecticut courts in this case

reaches the most reasonable resolution of a logically

ON -PUEOD ks eb ave'cecees czas cenesrivees

II. In invalidating the federal tax lien as against mort-

gagees and judgment creditors Congress must be

taken to have intended invalidation of the federal

lien as against local real property tax liens which are

normally prior to mortgages and judgment creditors’

ROE x cnessnee nich saseveverdabaveveeteteanere

111. In any event, the municipal liens which arose before

the federal liens are prior in right because prior in

time

A. Congress intended the rule of “first in time,

first in right” to apply under the federal gen-

ORE CO SE CRI 6.6. 0.as cb eccccecetivsae

B. Congress did not intend to enact the doctrine

of the inchoate and general lien ..........

CIN ui 5a boon bad dd end letecutereenaxete

T4

T 6

CITATIONS

Cases : Page

Adams v. O'Malley, 182 F. 2d 925 (8th Cir. 1950) .... N-5

American Surety Co. v. City of Louisville Mun. Housing

Comm'n. 63 F. Supp. 486, 487 (W. D. Ky. 1945... N-G

Ann Arbor Brewing Co., In re, 110 F. Supp. Hl

(ao & _ , eee reese er N-4

Atlantic Coast Line R. R. v. Phillips, 332 U.S. 168

CREED Se eesrevhnadesccccdpeusedeesscess ectsese T+

Baltimore Shipbuilding Co. 7. Baltimore,

FO. Ws a OPM EUPED abs crcvrccericerseeves N-2

Blacklock v. United States, 208 U. S. 75 (1908) ...... T-10

Board of Supervisors v. Hart, 210 La. 78, 94.

0 Ok ee ts Oe CUD wareccaviesasésvess N-3,6,7

Brent v. Bank of Washington, 10 Pet. 596 (1836) .... N-&

Caswell Construction Co., In re, 13 F. 2d 667, 672

1 hy op PRR RnR peer N-3.6

Cobb v. United States, 172 F. 2d 277, 278-9

i a a N-7

Cranford Co., Inc. v. L. Leopold Co., Inc., 189 Mise.

388, 70 N. Y. S. 2d 183 (Sup. Ct. 1947), aff'd

273 App. Div 754, 75 N. Y. S. 2d 512 (1st Dep't

1947), aff'd 298 N. Y. 676, 82 N. E. 2d 580

{ae CES RE iene hranieuareren green N-7

Davis v. Pringle, 268 U.S. 315, 318 (1925) .......... N+

Decker’s Estate, In re, 355 Pa. 331, 49 A. 2d 714

(1946) ; cert. denied sub. nom. Decker v. Kann

es ee SUE eon cob es been yennes 60s%0 N-&

Equitable Life Assur. Soc’y v. Moore, 29 F. Supp.

ee i oe a ile N-6

Exchange Nat. Bank of Tulsa v. Davy, 13 F.

Supp. 266 (N. D. Okla. 1936) .................. N-6

Exeter Banking Co. v. Sleeper, 97 N. H. 321, 87

Pe ee Ae, EE < c wae bene oan gacuaneseses N-45

Ferris v. Chic-Mint Gum Co., 14 Del. Ch. 232, 124

Oe CE BOE Wieck et cbes nkuceenvedes N-2.6 T-®

Fidelity & Deposit Co. v. Lovell, 108 F. Supp. 360

Se EE co ats add ods esse knoe N-4

First Nat. Bank v. Southland Production Co., 189

Okla. 9, 17-18, 112 P. 2d 1087, 1095-6 (1941) ...... N-7

Fisher Plastic Corp., In re, 89 F. Supp. 446 (D.

I NUE Conk ned chG eben ade ia bucks ee dese ey N+

Gerson, Beesley & Hampton, Inc. v. Shubert The-

atre Corp. 7 F. Supp. 399, 400 (S. D. N. Y. 1934) .. N-7

[2]

BLEED THROUGH— POOR COPY

[3]

Cases :—Continucd

Glenn v. American Surety Co., 100 VF. 20 977, C82

i A CR: sch neheeieare dv tee’ ¢¥oeneesees

Gulf Coast Marine Ways, Inc. v. The J. R. Hardee

107 F. Supp. 379, 385 (S. D. Tex. 1952)......--

Hawkins v. Savage, 110 F. Supp. 615 (D. Alaska

SEE odes eb cbheced Heedccdessnneaenttchreevees

Holmes Mfg. Co., In re, 19 F. 2d 239 (D. Conn. 1927 )

Howard v. Raikway Co., 101 U. S. 837, 845 (1879) .

Karno-Smith Co. v. Maloney, 112 F. 2d 690 (3d

EE Lh amekceNbeedsteeen ered os cxedseeres

Knight v. Knight, 272 App. Div. 499, 71 N.Y. S.

2d 357 (Ist Dep’t 1947) aff'd, 297 N. Y. 945.

fF ) Be 8 Fo rere Tree TTT eee

Levy v. Tubby’s Wine & Liquor Shop, Inc., 110

N. Y. S. 2d 653 (N. Y. City Ct. 1951), rev'd,

116 N. Y. S. 2d 207 (ist Dep't 1952) ..........

Littletown Nat. Bank v. Penn Tile Works Ca., 352

oe Se rere eee

F. MacKinnon Mfg. Co., In re, 24 }°. 2d 156 (7th

TD hw a V0 0G oh ec bbE Nak act ensececcees

Mansfield v. Excelsior Refining Ce., 135 U. S.

ae “ais heey Ee +

Mellon v. Michigan Trust Co., 271 U.S. 236, 240

CURRIED. 0006 ails 056.08 600 + GEs cde nsenceeeses vee

Merchant's Bank & T. Co. «. Pettison, 12 Conn.

652, 153 Ati. 789 (1931) ....... | Ee

Mitchell’s Restaurant, Inc., \n re, 31 Del. Ch. 121

SS i, re CD beet ctucasincsesncacagses +++

Mt. Jessup Coal Co., Ltd., In re, 7 F. Supp. 603

fo & OS Re eee

Muhleman & Kayhoe, Inc. v. Brown, 43 Del. 207,

SH. GE Gee Cee Gy. FORD) once ces ccc csescses

New York Casualty Co. v. Zwerner, 58 F. Supp.

ee EE ak cass nh sadk ccc eencesws exe

Northwest Wood Products Co., In re, 168 F. 2d

Ger CHG SEN serta bid sueVerecotenceeeesses

Paul v. United States, 127 F. 2a Supp. 64, 66 (6th

Cir. 1942), aff'd sub. nom. Detroit Bk. v. United

States, 317 U. S. 329 and Michigan v. United

ee US OR reo ee

Rankin & Schatzell v. Scott, 12 Wheat. 177, 179

SE, Oe OE 6s ke ckd can er see eece awe oeee xenon

Regan v. Metropolitan Haulage Co., Inc., 127 N. J.

Eq. 478, 14A. 2d 257 (Ch. 1940) ...........-..-..

BLURRED COPY

[4]

Cases :—Continued Page

Republic Nat. Life Ins. Co. v. Hedstrom, 346 Il.

App. 555, 105 N. E. 2d 782 (1952) ............ N-3,7

Richmond, City of, v. Bird, 249 U.S. 174 (1919) .... N-9

River Queen, The, 8 F. 2d 426 (E. D. Va. 1925) .... N-

Samms v. Chicago Title & Trust Co., 111 N. E.

ae U7e (OP GE. Aa. Gb, TGS) ccc cccecvevcces N-3

Schmitz v. Stockman, 151 Kan. 891, 101 P. 2d 962

SD. Wisapesvckenedve seated cuter dunededess N-O

Sherwood v. United States, 5 F. 2d 991 (E. D.

De Wee -Ueounthrcrdarseseuvchebesvecueeerrs N-4

State v. Wynne, 134 Tex. 455, 133 S. W. 2d 951

SE Antkseudeatomwukuned edad dn abecdeaenw's N-3,7

Sunnyland Wholesale Furn. Co. v. Liverpool & L.

& G. Ins. Co. 107 F. Supp. 405 (N. D. Tex. 1952) .. N-4

Taylorcraft Corp., In re, 76 F. Supp. 81, 85 (N.

D. Ohio 1947) aff'd, 168 F. 2d 808 (6th Cir. 1948) N-3.5

United States v. Acri, 109 F. Supp. 943 (N. D.

Se Ee chedendeuerreyde sedede vhneewxerees N-4

United States v. Alabama, 313 U. S. 274 (1941) ..... N-X

United States v. Albert Holman Lumber Co., 206

Jf 5 8 fe} ee errr N-+

United States v. Bank of Shelby, 68 F. 2d 538

NED sce nikaavsetercsvane ddiseerdevse N-6

United States v. Canadian American Co., 108 F.

supp. 206, 27 (E. D. N. ¥. 1952) ........--22.- N+

United States v. Certain Lands, 71 ¥. Supp. 76

Se ee ee EE ndbau cd capyiwreyd neue chiceeces N-7

United States v. 52.11 Acres of Land, 73 F. Supp.

jf &§ yk , eee eee N-6

United States v. Greenville, 118 F. 2d 963, 966

Sy SED Set cd derek ssdedaeveadiareuee da N-7

United States v. Griffin-Moore Lbr. Co., Inc., 62

cies cetawendewe rin rae N-4

United States v. Guaranty Trust Co., 33 F. 2d 533,

537 (8th Cir. 1929) aff'd on alternative ground,

es Se: CE a caccockdevnbboerseoenes N-3

United States v. O’ Dell, 61 F. Supp. 966, 968 (FE.

D. Mich. 1945) aff’d on other grounds, 160 F.

2d. Supp. 304, 306-7 (6th Cir. 1947) ............. N-6

United States v. The Pomare, 92 F. Supp. 185, 188

RSS SPREE RES ic Ta N-7

United States v. Record Pub. Co., 60 F. Supp. 194

Pe Sn css cieeeeduabwernedvunscnehaney N-7

United States v Rosenfield, 26 F. Supp. 433 (E.

i A SED Sees revedudeesewdowent terativec T-1!

[5]

Cases :-—Continued Page

United States v. Sampsell, 153 F. 2d 731 (9th Cir.

046) ee ee N-2,4,6

lnited States v. Security-First Nat. Bank, 30 F.

Supp. 113 (S. D. Cal. 1939), appeal dismissed, 4

ike fF, Lee BPP rere N-7,8

l'nited States v. Security Trust & Savings Bank,

ee eee: es Oe Ce weuctweureses T-9,10,11, 14; N-4

United States v. Snyder, 149 U. S. 210 (1893) .... T-1l

l'nited States v. Winnett, 165 F. 2d 149 (9th Cir.

SD ep antodaedne dn ciaedadeks eet cesetbeteces N-5

United States v. Yates, 204 S. W. 2d 399, 405

(Ham. Coe, Bae, GHD oc ccdvavcsscescceuptraveese N-7

United States Fid. & Guar. Co. v. Triborough

Bridge Auth., 297 N. Y. 31,74 N. E. 2d 226 (1947).. N-7

('nited States Fid. & Guar. Co. v. United States,

Sen F, 6 VOB CT Cit, WORE) coc c ec ceccrcvervcce N-5

l’an Winkle, In re, 49 F. Supp. 711 (W. D. Ky. 1943) N-6

Wilcocks v. Waln, 10 S. & R. 380 (Pa. 1824) ........ N-3

Winston-Salem v. Powell Paving Co., 7 ¥. Supp.

Ge Gis. es Fee Mee BE oe hagas cecuscceuseses« N-6

UW’ yley Co., In re, 292 Fed. 900 (N. D. Ga. 1923) ...... N-6

Miscellaneous :

ae Ei BO. CHEE once ec cevdevevvese N-9

25 A.B.A. Rep., 496 ED ver davervaceerseere N-9

SF R.A: Te, Sere CURES) cvcceseccscsiccives N-9

38 A.B.A. Rep., 618 EOE Wawwydseeurcceueees N-9

51 Am. Jur., Taxation 1016 (1944) ..............4.-. N-2

+ American Law of Property (1952)

LP boc ecepaceret beunssrds Hee doves N-1

PU BOE vo crccacccrsnveetwesrvensceseveciye N-2

Broom, Legal Maxims, 227 (10th ed., Kersley, 1939) .. N-8

Campbell, Protection Against Indirect Attack in..........

Harvard Legal Essays 3, 17-18 (1934) ......---- N-1

Collier, Bankruptcy (14th ed.)

Wak, D, Pa GAME CUTE) ccerccsccedscseeees N-9

Vol. 4, Pars. 67.24, 67.26 (1942) ..... Panis ate N-8

Cong. Globe, 37th Cong. 2d Sess. 2254-58, 2351-8,

CUED bveay pvathwdeces onaveenteteedes N-9

> Camg. Bec. THE (FFED) oc cc cvcccsvcvccecveee N-11

S4 Comp. Boe. FARES (TGR) oc ccncccsvcavercenses N-11

Hellerstein, State and Local Taxation, °, 643-7 (1952) N-2

[oJ

Miscellaneous :—Continued Page

H. R. Rep. No. 1018, 62d Cong., 2d Sess. (1912) .... N-89

H. R. Rep. No. 1273, 68th Cong., 2d Sess. (1925) .... N-&

H. R. Rep. No. 855, 76th Cong., Ist Sess. 25-26 (1939) N-&

H. R. Rep. No. 2333, 77th Cong., 2d Sess. 173 (1942) N-9

Kohlmeier, Federal Tax Liens Under Rew. Stat.

Sec. 3186 13 Tax Mag. 191, 196 (1935) .......... N-4

2 Lewis’ Sutherland, Statutory Construction 1914-

Se Se arty Orr yey sere years Pre N-2

Mote, 36 Col. L. Rev. 1267 (9958) oes cvcssveneses N-2

pre, 36 Fate LF. 1200, LAO CIOS) ov ccc cock seces N-4

Osborne, Mortgages, (1951)

EE oc 50 cack eer cena wel waar N-1

PU Se eon va ceksbawnevsdoneeares <eow Wane OS b

Seligman, Essays in Taxation 345 (10th ed. 1925) .... N-2

Sen. Rep. No. 1315, 62d Cong., 3d Sess. (1913) ...... N- i -

Ss

Sen. Rep. No. 648, 76th Cong., Ist Sess. 10 (1939) .. N-®

Sen. Rep. No. 1631, 77th Cong., 2d Sess. 248 (1942) .. N

Wurzel, Taxation During Bankruptcy Liquidation,

55 Harv. L. Rev. 1141, 1145-6 (1942) ........... N-4

Statutes:

Bankruptev Act

eC, Pare ok, 9 he ae e ae vee ee NR aah IE sts hh yds TS

EME RATED so Slate yO ES ee ee ae N-3

OE ico c can aks ces 66a dae cane aie eee TS

Connecticut General Statutes (1049)

EE ER a cag au caw bo gece dike ee T-4

i See eee ae trae ue ay T-4, N-48

Delaware Laws (1941) Chapter 280

PE as on Ci cckunaeweteueas meena eaed N-2

Internal Rerenue Code

RE egy is a d's Say ree eR aa eee ee N-7

RS oi Ld panies Valen hee aaa aen T-10

0 Per er reer ge ternal) T-11

ne ss 2h. ocd bv nae s eae T-3,4,8,10,13.14

I TE fo os wren eciaene tea cdaeeeeeeneee T-3

Se ee ee T-3,4.7,9.10,13; N-4

17]

S:atutes :-—Continucd Page

Key. Stat. (1875)

PUB EENR Sho ot ole a as ca ae ee OO N-5

Ee RS Sieg A IES RE NP ce N-5

eT ees vie naa oe eae N-5

EN En coe ivcean o% cone ne vane N-3; T-4,12,13

Umited States Statutes-at-large

SR an snp adades essere aene ee N-5

ee ee A op cxawscenevouabens ens N-5

eb as Gwe ap ca oe alee N-5

ee a eS ee meareev om N-5

gs ns canara € cd eewemnens N-5

ee nee eabee ewes tee N-5

Does oye cea warbeenenenaen es N-5

a as Sie wg Wale KK eer ea eR N-5

Yr > = dat... errr err reer ee N-3

ER rn a db ons bee ob euee eu» N-2

pany ce abou ecedelen dees N-3

Sp) PR EE ous 5 < cake dees euduce sede cs N-3

Ss 1 EDs ae see edseaneeas N-3

ey ee ee: PE GL no cen setceus Wee pen N-4

I I eee ee ee ee as ook N-4

Dy A SY ce ood yaw ds a he aR oe N-4

ee a re ae Cade w ie cee Kane N-3

Bi SARE a oA REN coor ks CoN Nate ease woes N-4

BLEED THROU GH-— POOR COPY

Inthe Supreme Court of the United States

OcToBER TERM, 1953

No. 92

Unitep States of AMERICA, PETITIONER

v.

City or New Britain, ConNECTICUT, ET AL,

RESPONDENT

ON WRIT OF CERTIORARI TO THE SUPREME COURT

OF ERRORS OF THE STATE OF CONNECTICUT

SUPPLEMENTAL BRIEF FOR RESPONDENT

GRANT OF PERMISSION TO FILE

This supplemental Brief for the Respondent is submitted

pursuant to permission granted by the Court at the close of

the argument heard in this case on December 1, 1953.

QUESTION PRESENTED

The question here is whether the Supreme Court of

Errors of Connecticut committed reversible error in affirm-

ing a judgment directing distribution of the proceeds of a

mortgage foreclosure sale of Connecticut real estate.

[T1]

BLURRED COPY

{ T2 ]

The judgment provided for distribution in the following

order: expense claimants; the City of New Britain as lienor

for real estate taxes and water charges; L. Brown as holder of

first and second mortgages, including certain costs taxed in

his favor; W. G. Dunn as judgment lienor; and the United

States as lienor for withholding and federal unemployment

taxes and federal insurance contributions (R. 10-11). Al

though the present controversy is by stipulation (R. 12)

solely between the City of New Britain and the United

States as to their relative priority, the mortgages and judg-

ment lien are not stipulated out of the case. In particular

it is pointed out that the controversy does not concern merely

the relative superiority of the federal and the municipal tax

liens in a surplus remaining after satisfaction of the mort-

gages and other prior claims, as is suggested in the Govern-

ment Brief at pp. 2 and 4n. 1.

SUMMARY OF ARGUMENT

I

The Government's first argument is that although the

municipal liens on the Connecticut realty here involved are

superior by Connecticut law to encumbrances which are by

federal law superior to the Government's tax liens, the muni-

cipal liens are not thereby superior to the federal tax liens.

Yet neither logic nor authority is shown to require or, indeed,

to permit any different result. Even if arguendo it should be

conceded that the federal liens would supercede the City’s

liens in a contest not involving encumbrances prior to the

federal liens, the presence of such encumbrances here creates

a logically insoluble circuity of priority on the assumptions

made by the Goverment. The resolution of the problem by

the Connecticut courts is presumptively correct and cannot

be overturned on a suggestion of the existence of possible

alternatives which generate incongruities of their own.

BLEED THROUGH-— Poor copy

[ T3 }

II

The government concedes the validity and priority of

of the mortgages foreclosed below. Under the law of Con-

nectcut, and generally, mortg.g2s on realty are subject to

lens securing local taxes on the realty. Mortgagees can

ordinarily protect their security by paying such taxes and add-

ing the amounts paid to their mortgages. In enacting in

1913 the notice-filing provision now found in Section

3572(a) of the Internal Revenue Code, which protects mort-

cages as against unfiled federal tax liens, Congress cannot be

deemed either to have been unaware of the superiority gen-

c-ally conferred on local real estate tax liens over mortgages

cr to have intended to create a circuity of priority involving

these three classes of liens. The only reasonable interpreta-

ton of Section 3672, therefore, is that Congress intended

invalidation of the unfiled federal lien as against not only

mortgagees and others named therein but also local govern-

mental units holding paramount tax liens according to norm-

ally prevailing rules of relative priority.

II]

Although the court below relied on what it regarded as

the reasonable interpretation of Section 3672(a) of the In-

ternal Revenue Code rather than on the rule of “first in time,

first in right,” which it thought applicable under Sections

3670 an 3671, the Government challenges the discussion of

the latter rule as a holding contrary to its position that the

federal tax lien is always paramount under these sections.

Section 3672 is viewed in its Brief as a statute creating ex-

cepticns to that paramountcy rather than as a notice-filing

statute designed to protect subsequent purchasers and certain

subsequent encumbrances against the harsh consequences of

enforcing the secret federal tax lien. Finally, the Govern-

ment urges that the City’s liens were not perfected so as to

BLURRED COPY

[ T4 ]

prevail over the federal tax liens under the rules developed

in the cases construing Revised Statutes Section 3466, con-

ferring priority on the United States in certain liquidations

of insolvent estates. The repositories of evidence of legis-

lative intent in the enactment and amendment of Sections

3670-3672 of the Internal Revenue Code are not only devoid

of any suggestion that the general tax lien is to have any

special priority or that the policy embodied in the federal

priority statute (Rev. Stat. Section 3466) has any revelance

for the general lien statute; they contain convincing proof

that the Government's position thereunder is intended to be

assimilated to that of the ordinary private lienor.

ARGUMENT

I

Even if the federal liens were superior to the muni-

cipal liens in -a hypothetical situation not involvmg a

mortgage and judgment lien, the disposition of the pro-

ceeds by the Connecticut courts in this case reaches the

most reasonable resolution of a logically msoluble

problem.

The real property subject to the liens involved in this

case was sold to the foreclosing mortgagee for $27,500. Net

rental receipts augmented the proceeds to slightly more than

$28,000. The dispute here concerns the rival claims to the

balance of roughly $26,000 remaining after defrayal of sale

expenses. It will simplify the presentation and, it is believed,

entail no distortion to use round numbers and to assign letter

symbols to the different liens involved.

The Connecticut courts made the first allocation out of

the balance to the City of New Britain in payment of its

liens securing taxes and water charges amounting to $4,000

pursuant to Conn. Gen. Stat. Section 1853, 758 (1949):

pe

and th

the orc

foreclo

presen’

letter

these t

ance.

ment <

its tax

The $'

$8 ,00C

T

over E

11).

and ir

placin

tion oO!

seem t

7

osoph

sarily

vigorc

argum

were |

only 1

judgm

be in ¢

of pri

such |

in the

priori

of cir

BLEED THROUGH-— POOR copy

[T5 J

d the letter A may be assigned to these liens. Next in

e order of distribution came the two mortgages which were

reclosed and thereafter a junior judgment lien, but for

esent purposes they may be grouped together under the

ter B, since there is no dispute about the order among

ese three liens. These liens absorbed $17,000 of the bal-

ce. Finally, the judgment under review ordered the pay-

ent of any remainder to the United States on account of

; tax liens, and these may be grouped under the letter C.

he $5,000 balance was insufficient to pay the Government's

3,000 claim in full.

The government does not challenge the priority of A

er B, and concedes the priority of B over C (Brief, pp. 4,

.). It contends nevertheless that C is paramount to A, and

id indeed, on page 6 of its Brief, that logic is violated by

acing A over C. Insofar as logic affords a guide to solu-

on of the problem presented, the result reached below would

em to be irrefutable.

The contention that C is prior to A is based on a phil-

ophy or a prepossession that whatever is federal is neces

rily supreme, whether Congress wills it so or not. We

gorously challenge the validity of that assumption in the

gument made under I] and III, infra. But even if the law

ere otherwise and C could be said to be paramount to A if

ily those two lienors were involved, we submit that the

dgment of the Connecticut courts in this case would not

- in error.

The argument of the Government creates a circuity

' priority: A over B, B over C, C over A. Courts eschew

ich situations as logical absurdities, and they do not arise

the application of the usual rules governing the relative

‘iority of liens. If a court is unable to escape a situation ;

circuity of priority, it has of course a logically insoluble

ee

BLURRED COPY

en ——

( T6 J

problem on its hands. The courts have wrestled with this

kind of problem for two and one-half centuries, and legal 3¢

scholars have vied with the courts in venturing solutions. bi

Professor Osborne in his new Handbook on Mortgages dis- al

cusses seven methods of disposition, none of which is free al

from criticism.’ Logic fails because each claimant is entitled se

to the full extent of his lien as against an inferior lien, but 2

can be required to yield to the full extent of a superior lien: li

yet every lien is superior and inferior at the same time.” In u

such a situation there can be no ineluctable correct result.*

In such a situation as that presented here the presump-

tion in favor of the validity and correctness of the judgment

of the highest court of a state comes here with special

strength. While of course not binding on this Court, a statz

court’s determination in a case involving an asserted conflict

between a state tax statute and a federal constitutional or

statutory provision will be accorded great respect and sus-

tained if “no real oppression or manifest wrong” results.

Atlantic Coast Line R. R. v. Phillips, 332 U.S. 168 (1947).

The judgment now before the Court is the judgment of

a unanimous court of last resort of the State of Connecticut

affirming a state superior court, there being full argument of

the question and full consideration of the contentions here

presented, in both courts below. The Government has failed

to discharge the burden resting on it in seeking the overturn

of the Connecticut courts’ judgment. ' i

an a |

a

._a-_- ™/*! += &* | SS CO. th

II (

In invalidating the federai tax lien as against mort-

gagees and judgment creditors Congress must be taken to |

have intended invalidation of the federal lien as against

local real property tax liens which are normally prior to

mortgages and judgment creditors’ liens.

RIiIEerern THR OLIGHe- POOR COPY

[ T7 j

The local real estate tax was in 1913, when Secticn

3672 was enacted in its original form, and is still in 1953 the

basic source of revenue by which local communities are en-

abled to provide the elementary governmental services of fire

and police protection, maintenance of schools, streets, and

sewers, etc.* As intimated in the Government's Brief at page

23, this kind of tax is generally secured in this country by a

lien which is accorded priority over all other encumbrances,

without reference to the time the latter arise.”

Laymen are hardly less aware than lawyers of the prime

nature of the real estate tax lien and its crucial importance in

real estate transactions. The members of the Congress that

enacted the original notice-filing provision in 1913", now

Section 3672(a) of the Internal Revenue Code, cannot be

deemed to have legislated in ignorance of what has been com-

mon knowledge among men of affairs in this country for a

hundred years. It would be even more incredible to suppose

that Congress, familiar with the general superiority of local

real estate tax liens over mortgages and other encumbrances,

would invalidate the unfiled federal tax lien as against mort-

gagees and judgment creditors and yet intend to confer su-

periority for the federal lien as against the local tax lien.

To impute to Congress an intent to create situations of cir-

cular or triangular priority surely does violence to the canon

that a construction will be avoided which leads to an absurd-

ity or imputes total ignorance to the legislature when an ap-

plication having no such consequences is possible.’ As the

court below concluded, it is not merely a permissible but

“The only reasonable interpretation of Section 3672 -- - that

the Congress, in enacting it, expressed the intention that

Federal liens should be subordinated to such mortgages and

judgment liens as are described therein and, consequently,

subordinated to such other incumbrances as have priority

BLURRED COPY

(T8]

over those mortgages and judgment liens.” 139 Conn. at 373

94 A.2d at 15 (R.22).

Precisely the same conclusion was reached by Chancellor

Walcott in Ferris v. Chic-Mint Gum Co., 14 Del. Ch. 232,

124 Atl. 577 (1924), a case on all fours with the present

case." In addition to this precedent, the only case in point

cited in the Government's Brief, the result below is supported

by the several authorities cited in the footnote appended

hereto.” If logic falls short of sustaining the Government's

first argument, its appeal to authority (in its Brief at pp. 6

and 12) is no better founded.””

But it is said at page 15 of the Government's Brief that

if a municipal tax lien may prevail over a federal tax lien,

a state is free to subordinate the federal lien to every manner

of state lien, thus defeating the uniformity which is the cardin-

al principle of federal tax legislation. Now uniformity is not

the legal equivalent of supremacy. Moreover, the principle

of uniformity, whatever its strength, is one of construction

and cannot override other manifestations of Congressioal

intent, even though the federal treasury may net less from lien

foreclosure proceedings. In five of the nine amendments of

the general tax lien statutes which have brought Sections

3670-3672 to their present form'' Congress has concerned

itself with making the statute operate more equitably in re-

spect to third parties rather than more uniformly and effect:

ively as a means of insuring collection of taxes due the United

States. The same policy is found in what Congress has done

in Sections 64a and 67c of the Bankruptcy Act whereby the

relative status of federal tax claims and federal tax liens in

bankruptcy proceedings has waned over the course of the

last half century.’”

The court's ruling below, however, that Congress must

have intended the invalidation of the unfiled federal tax lien

—p

—.

= A) fF AS

~~ A A OO -

1 T9)

against not only mortgages and judgment liens but also local

encumbrances paramount to such mortgages and judgments,

involves no violation of the principle of uniformity. <As

pointed out above (see note 9 and the accompanying text),

other courts are in general accord with the ruling. And,

indeed, the Government is constrained to concede that where

a mortgagee may under state law pay municipal taxes and

charges and add the amount to the secured indebtedness, the

amount so paid is secured by a lien of the same stature as the

mortgage vis-a-vis the federal tax lien.’ If Congress should

become persuaded that states are about to engage in wide-

spread subordination of mortgages and judgment liens to

other liens in order to defeat the tax lien of the United States.

and that national tax collection may be jeopardized hereby.

then Congress may appropriately legislate against the danger.

Ill

In any event, the municipal liens which arose before

the federal liens are prior in right because prior in time.

A. Congress intended the rule of ‘‘first in time, first

in right’ to apply under the federal geneval tax lien statute.

While the decision below did not rest on the rule that

“first in time is first in right” and has been shown to be

correct without reference to that rule, convincing evidence

that Congress intended the rule to govern in the application

of the original general tax lien statute negates the Govern:

ment’ argument for an absolute priority over liens not named

in Section 3672.

The Governments reliance is placed on United States

v. Security Trust & Savings Bank, 340 U. S. 47 (1950), sus-

taining the priority in right of a federal tax lien which arose

after an attachment lien had become effective under Califor-

( T10 J :

nia law. The Security Bank case is distinguishable from that

presented here in that (1) it did not involve three or more

liens some of which were conczdedly prior to the federal tax

lien; (2) the attachment lien there involved possessed none

of the characteristics of the City’s real estate tax lien which

enable it to supersede other encumbrances, including both

prior and subsequent mortgages and judgment liens and; (3)

the attachment lien had not reached the stage of immediate in-

forcibility that characterizes the C_ty’s tax liens in this case."

Insofar, however, as the United States relies on Security

Bank for asserting a rule of absolute paramountcy for the

general federal tax lien over all liens not literally excepted by

Section 3672”, its Brief ignores cogent evidence of Congres-

sional intent to the contrary.”**

Graphic proot of the Congressional intent with respect

to the relative priority of the lien created by Section 3670

is found in the contrast between the language it has used in

the general tax lien statute and that found in the contempor-

aneously created lien for taxes on distilled spirits.'* Congress

became concerned, however, lest the purpose of collecting

the tax on distilled spirits should be defeated by prior liens,

and so it provided explicitly for a first lien in legislation that

survives today in Section 2800e (1) of the Internal Revenue

Code.’* But Congress was so solicitous of the rights of prior

lienors that it insisted on obtaining waivers of their priority

before a distiller could obtain a performance bond, a condi-

tion precedent to legal entry into the distilling business.”

This waiver is still provided for in Section 2815 (b)(1)(B)

of the Internal Rewenue Code. If the Government's second

argument here were sound, such an elaborate provsion would

be superfluous. In Blacklock v. United States, 208 U. S. 75

(1908), where it became revelant to determine the relative

priority of a federal tax lien securing unpaid taxs on distilled

spirits as against property for which no waiver had been ex-

1 T11 )

ecuted, the Court ruled in favor of the Government solely

and explicity on the grounds that the Government's lien wa:

first in time. Id. at 89. See also Mansfield v. Excelsior Re:

fining Co., 135 U. $. 326, 339 (1890).

The suggestion in the Government's Brief (at p. 13)

that “Stronger language could hardly have been selected to

reveal” a purpose to confer paramountcy on the general lien

over stat2-created liens is belied by the ease with which

Congress selected thie expression “first lien’ when that fitted

its purpose. The contemporaneity of the or:gin of the general

and special tax lien statutes and of amendatory legislation”

precludes the suggestion that Congress did not deliberately

refrain from conferring the same status on the general tax

lien as it did on the distilling tax lien.

The Government purports to find in the notice-filing

provision added in 1913 a purpose to confer paramountcy

on the federal tax lien as against all liens not specifically

named therein w:thout reference to the chronology of their

attachment. Since the City of New Britain is not explicitly

comprehended within the list of beneficiaries of that amend-

ment, it is argued that it cannot prevail over the federal tax

lien even though prior in time. This reading of the notice-

filing provision discloses a misapprehenscn of its purpose

and effect. The specific purpose of the amendment ef 1913

was to overrule United States v. Snyder, 149 U. S. 210

(1893), which had enforced the federal tax lien as against a

subsequent bona fide purchaser of realty. Likewise the pur-

pose of the amendment of 1939, as pointed out in Mr. Justice

Jackson’s opinion in Security Bank, 340 U. S. at 53, was to

overrule United States v. Rosenfield, 26 F. Supp. 433 E. D.

Mich. (1938), which enforced the federal lien as against a

subsequent purchaser of securities. These cases were no more

than applications of the “first in time, first in right” rule

{ T12 J

Congress acted to relieve against the resulting harshness by

protecting purchasers and certain encumbrancers as againct

even a prior federal tax lien of which they had no notice.

The rule of “first in time, first in right” still prevails, but

as to three classes of lienors, the Federal Government's lien

is postponed in effectiveness until notice-filed. So far as

lins are concerned, the law of 1913 makes no change: The

rule is still “first in time, first in right” as four dozen cases

attest.”

B. Congress did not intend to enact the doctrine of

the inchoate and general lien.

Although the Government acknowledges that the dis-

tribution of the proceeds in the foreclosure action below is

not governed by the federal priority statute (Rev. Stat. Sec-

tion 3466, (1875), it invokes precedents decided under that

statute in support of its contention that the City’s tax liens

here were not perfected before the federal liens arose (Gov-

ernment’s Brief, pp. 25-28.) In view of the specific nature

of the City’s tax and of the liens securing it, as contrasted

against the general tax lien of the Government, its counsel

could not with good grace challenge the specificity of the

municipal liens. Moreover, the liens were “perfected” against ©

every interest and in every sense in which the term is used

outside the esoteric world that has enveloped Section 3466

of the Revised Statutes since 1929.

Whatever may be said as to the process by which the

doctrine of the inchoate and general lien has been engrafted

onto the federal priority statute™, there is no justification

whatever for reading the doctrine into the federal tax lien

legislation. The suggestion in the Government's Brief (pp. 25

et seq.) that the two statutes should be assimilated ignores

the fact that nowhere in legislative records and reports that

throw light on the purpose and meaning of the federal tax

[ T13 ]

lien statute and its nine amendments is there the breath of

a suggestion that the federal priority statute bears any rela-

tion or, indeed, even exists”. In bankruptcy legislation, this

Court has always recognized that Congress has exercised

care in distinguishing between priorities and statutory liens

for taxes®’. If the federal priority and tax lien statutes are

now to be zmalgamated, there should be, if not an affirma-

tive show:ng that the Congressional purpose is being effect-

uated, at least a demonstration that the result is not incon-

sistent with that purpose.

Irrefutatle proof that Congress intended no enactment

of the rule disent.tling inchoate and general liens from rank-

ing in the order of their creation under Sections 3670-3672

is provided by the House Report accompanying the bill that

became the 1913 amendment. One of the Government's

examples of an inchoate and general lien is a judgment lien

(see its Petition for Certiorari at p. 14, n. 5). The implica-

tion is then that were it not for the express saving of he

judgment creditor in the notice-filing statute, the federal

tax lien would prevail over a prior jurgment lien. The House

Report, however, discusses the plight of judgment creditors,

along with purchasers and mortgagees, who could not under

the law as then written protect themselves against prior

secret tax liens without consulting every collector in the

country”. If the law were as the Government contends, it

would not have done the judgment creditor any good to con-

sult all the collectors in the country, because a later federal

tax lien would override his judgment equally with a prior

one.

The contention of the Government in this case that the

federal tax lien under Sections 3670-72 must be accorded

paramountcy by virtue of its assimilation with the federal

priority under Revised Statutes Section 3466 is wholly con-

{ Ti4 J]

tradicted by this plain, unambiguous statement in the House

Report accompanying the 1913 amendment: “There is no

reason why the government should not occupy the same po-

sition with reference to liens on property as does the individ-

ual**.” The statement embodies the philosophy written into

Section 3670 and all its amendments. The Government has

cited, and it is believed can cite, no evidence of a contrary

legislative intent. Insofar as the Security Bank case may be

thought to be based on a contrary view of the tax lien statute,

it is pointed out that the Government's unopposed Brief in

that case did not call the attention of the Court to the ev-

idences of legislative intent herein discuseed. Nor was the

impressive array of authority treating the federal tax lien

like an ordinary private lien discussed in that Brief.

The centripetal force that has influenced so much po-

litical thought in the last quarter century should not be per-

mitted to control the construction of a statute enacted and

amended with completely different presuppositions in the

legislative mind. It may be that the federal tax lien should

prevail over all inchoate and general liens if the collection of

taxes due the United States from tax delinquents is to be ad-

equately fulfilled. But Congress has not said so. Congress

is subject to no constitutional compulsion to enact tax col-

lection legislation with a single eye to its effectiveness in

increasing the revenue. Notwithstanding the magnitude and

supremacy of its power to tax, Congress is under no duty to

override municipalities throughout the country in their con-

current efforts to collect revenue from real estate. On the

contrary, Congress is constitutionally free to enact tax col-

lection legislation which operates equitably as against third

persons, including municipalities. It is constitutionally free

to use its acknowledged powers in such a way that local

governments can remain strong and continue to provide the

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—

1 T15 )

basic services for which the American people still look to

such governments.

CONCLUSION

For the foregoing reasons the judgment of the Supreme

Court of Errors of the State of Connecticut should not be

disturbed.

Respectfully submitted,

P Haro.p Kop Lowi!tTz

300 Main Street

New Britain, Connecticut

Frank R. KENNEDY

State University of Iowa College of Law

Iowa City, Iowa

Counsel For Respondent

December 1953

BLURRED COPY

FOOTNOTES

' Osborn, Mortgages $209 (1°51). See also 4 -finerican

Law of Property §17.33 (1952).

* The Government suggests at pp. 7 and 17 of its Br ef that

there is another way out of the circuity created by its assumption

in respect to the superiority of the federal tax lien. This so ution

would set aside enough to pay B, i.e., the mortgage liens and the

judgment before satisfying the Government. 4, i.c., New Britain,

would be satisfied from the sum set apart. The suggestion appears

to accord rather cavalier treatment to the interests of the mort-

gagee and the judgment creditor in the light of the protestations

on pages 2 and 4 of the Government's Brief that the controversy

here relates only to the relative priority of the City and the United

States in a surplus remaining “aftcr satisfact.on of the mortgages

and other prior claims.” But it is to be kept in mind that while

the bid here was $27,500, with $500 coming in from rent, actually

the mortgagee who purchased the property applied his $15,000 debt

to the bid. There was thus only $13,000 cash involved. $2,000

went to administrative expenses. $4,000 applied to the City’s tax

hens would leave $7,000. Surely the judgment lienor is then entitled

to his $2,000 before any payment to the Un.ted States. whose licn is

explicitly made invalid as against the judgment creditor by Section

3672. That leaves only $5,000 for the United States, i.c., what it

got under the lower courts’ judgment.

The Government's method of solution can be applied with

equal propriety in this wise: Start with the Federal Government,

setting a part sufficient out of the $26,000 to pay its $8.090. Next

would come the City of New Britain with its $4,000 of course, and

then the mortgagee and judgment creditor. But the mortgagee

and judgment creditor, being prior to the Federal Government,

would be entitled to payment out of the sum of $8,000 so set apart.

The ultimate result of this application would be the same as that

reached by the judgment below. The logic that justifies forcing

B to absorb 4’s priority to protect C against indirect attack fur-

nishes just as strong support for compelling C to absorb the prior-

ity of B in order to protect A against B. Cf. Campbell, Protection

Against Indirect Attack in Harvard Legal Essays 3, 17-18 (1934).

([N1]

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[ N2]

Perhaps the closest approximation to a sc:entific solution

to the problem is that advanced in a Note in 38 Col. L. Rev. 1267

(1938), proposing that the method of distribution seek to approach

the reasonable expectation of each claimant as a junior lienholder.

The equ.ty of the lienholder subsequent to the smallest of the

competing liens would thus be the strongest, and the lienholder

who is subsequent to the largest lien would have the weakest po-

sition. That would be the Government here since it concedes

priviiiy to B, representing $17,000 in liens. As Professor Osborne

points out, however, this method of solution has the disadvantage

of considerable complexity (Handbook on Mortgages 538-9). So

far as can be discovered, it has never been employed in a reported

case.

* Hellerstein, State and Local Taxation 9, 643-7 (1952):

Seligman, Essays in Taxation 345 (10th ed. 1925).

5 See Baltimore Shipbldg. Co. v. Baltimore, 195 U.S. 375,

381 (1904) (per Mr. Justice Holmes) : + American Law of Prop-

erty 242 (1952); 51 Am. Jur., Taxation 1016 (1944).

® 37 Stat. 1016.

7 2 Lewis’ Sutherland, Statutory Construction 914-15

(1904).

Ss

3

lf this case is to be limited to its peculiar facts, as the

Government suggests in its Brief at p. 12 n. 4, here are the peculiar

facts again. But the Government suggests that Ferris has been

limited and in effect discarded by the court which rendered it in

In re Mitchell’s Restaurant, Inc., 31 Del. Ch. 121, 67 A.2d 64

(1949). This disparagement is made in spite of the fact that the

court said explicitly and correctly in Mitchell that Ferris was not

in point. 31 Del. Ch. at 128, 67 A.2d at 68. Mitchell nvolved

unpaid state unemployment compensation contributions which were

not even regarded as liens under the applicable state statute (Del.

Laws 1941, ¢.280, $14(g) ). Moreover, that statute explicitly

preserved priority of federal taxes.

9 United States v. Sampsell, 153 F.2d 731 (9th Cir. 1946)

(involving a state corporate franchise tax, a mortgage, and a fed-

eral tax lien in bankruptcy; chronological order observed) ; Lewy

v. Tubby’s Wine & Liquor Shop, Inc., 110 N. Y. S. 2d 653

BLURRED COPY

———

[N3 ]

ON. Y. City Ct. 1951) (state and city tax liens, judgment cred-

itor’s Len, and federal tax lien), rev'd on another ground, 116

N.Y. 8. 2d 207 (1st Dep't 1952): State v. Wynne, 134 Tex. 455,

133 5. W. 2d 951 (1939) (state tax lien, mortgage, and a federal

lien and priority in receivership proceeding). Moreover, the rea-

soning in Board of Supervisors v. Hart, 210 La. 78 ,94, 20 So. 2d

361, 306 (1946), In re Tayloreraft Aviation Corp., 70 F. Supp. 81,

83 (N. D. Ohio 1947), aff'd, 108 F. 2d 808 (Oth Cir. 1948),

and In re Caswell Construction Co., 13 F. 2d 667, 672 (N. D.

N.Y. 1926), supports the result below.

lf we should bring in Rev. Stat. $3466 cases, as the Govern-

ment has (see note 10, infra), we may cite in support of the result

below the decisions in United States v. Guaranty Trust Co., 33

IY. 2d 533, 537 (Sth Cir. 1929), aff'd on alternative ground, 280

U.S. 478 (1929): and Wilcocks v. Waln, 10 S. & R. 380 (Pa.

1824).

Note + on p. 12 of the Government's Brief cites three

cases as directly contra to the decision below. The first is a de-

cision of an intermediate Ill.nois court, two judges participating,

involving a mechanic's lien subsequent in time to the federal tax

Len. The Samms case avowedly follows Republic Nat. Life Ins.

Co. v. Hedstrom, 346 Ill. App. 555, 105 N. E. 2d 782 (1952),

“which arose on a state of facts almost identical” and which con-

iains an excellent refutation of the Government's second argument,

i.e, as to the applicability of the “first in time, first in right”

rule to the federal tax lien. The second footnote authority is a

memorandum opinion of a West Virg.nia circuit court, which in-

volved Rev. Stat. $3466 rather than the federal lien statute in-

volved here. The third case is an unreported opinion of a federal

district court, which can not be scrutinized. This array of au-

thority hardly settles anything against the decision below, even if

it stood alone.

m= 20 Stat. 331 (1879), eliminating relation back of lier to

date tax became due: 37 Stat. 1017 (1913). postponing validity

of lien to notice-filing with respect to purchasers, mortgagees, and

judgment creditors; 43 Stat. 994 (1925), providing for notice-fil-

ing in records of towns and cities in New England; 45 Stat. 875

(1928), placing limitation on duration of tax lien; 53 Stat. 882

(1939), adding pledgees to list of beneficiaries of notice-fiing

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[N4]

and protecting purchasers, pledgees, or mortgagees of securities

against any federal lien of which they have no notice or know-

ledge. The four amendments effected by 48 Stat. 757 (1934),

49 Stat. 1921 (1936), 53 Stat. 448 (1939), and 56 Stat. 957

(1942), have involved formal or procedural changes.

See Wurzel, Taxation During Bankruptcy Liguidation,

55 Harv. L. Rev. 1141, 1145-6 (1942) : Note, 56 Vale L. J. 1258,

12603 (1947): cf. Davis v. Pringle, 208 U. S. 315, 318 (1925):

Mellon v. Michigan Trust Co., 271 U.S. 236, 240 (1926).

See Sherwood v. United States, 5 F. 24991 (E. DLN. Y.

1925) ; Kohlmeier, Federal Tax Liens Under Rez. Stat. Sec. 3186,

13 Tax Mag. 191, 196 (1935); cf. United States v. Sampsell, 153

F. 2d 731, 736-7 (9th Cir. 1946).

4 Municpal tax liens on realty may under Connecticut law

be enforced by levy and sale. Conn. Gen. Stat. $1853 (1949).

No reported case decided since Security Bank has been

found wh.ch gives effect to the Government's view of its holding.

In the following post-Security Bank cases nonfederal liens were

sustained as against the federal tax lien although not excepted by

Section 3672: United States v. Albert Holman Lumber Co., 206

FP. 2d 685 (Sth Cir. 1953) (materialman’s Len) :In re Ann Arbor

Brewing Co., 110 F. Supp. 111 (E. D. Mich. 1951) (local and

state tax liens); United States v. Acri, 109 F. Supp. 43 (N. D.

Ohio 1952) (attachment lien) : Sunnyvland Wholesale Furn. Co. 7

Liverpool & L. & G. Ins. Co., 107 F. Supp. 403 ( N. D. Tex. 1952)

(garnishment lien), Fidelity & Deposit Co. v. Lovell, 108 F. Supp.

300, 308 (S. D. Miss. 1952) (lien of creditor's bill attacking

fraudulent conveyance ) ; United States v. Canadian American Co.,

108 I°. Supp. 200, 207 (EE. D. N. Y. 1952) (county real estate tax

lien); Gulf Coast Marine Ways, Inc. v. The J. R. Hardee, 107

IF. Supp. 379, 385 (S. D. Tex. 1952) (preferred maritime liens) :

United States 7. Griffin-Moore Lbr. Co., Inc., 62 So. 2d 589 (Fla.

1933) (mechanic's lien): Levy v@. Tubby’s Wine & Liquor Shop,

Inc., WON. ¥. S. 2d 653 (N.Y. City Ct. 1951), rez’d on another

ground, 116 N. Y. S, 2d 207 (1st Dep't 1952) (city and state tax

liens). Cf. Hawkins v Savage, 110 F. Supp. 615 (D. Alaska

1953) (attaching creditor regarded as a bona fide purchaser under

Congressional legislation): E.reter Banking Co. 7. Sleeper, 97

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a

[ N5 ]

N. H. 321, 87 A.2d 151 (N. H. 1°52) (sustaining equitable in-

terest as a mortgage enforceable aga.nst the United States as a

rival enor).

1’ Insofar as the literal language of Sections 3670-3672

controls, a reading which recognizes the validity of preexisting

liens g.ves full and precise eifect to the words used. The cases

of divided ownership contemplated by the reference to “rights to

property” in $3670 include property held subject to encumbrances.

See, e.g., United States Fid. & Guar. Co. v. United States, 201 F.

2d 118 (10th Cir. 1952) (involv.ng lien of surety on subcontract-

or’s performance bond against fund payable to subcontractor) ;

Karno-Smith Co. v. Maloney 112 F. 2d 690 (3d Cir. 1940)

(* ...the rights of the collector rise no higher than those of the

texpaver whose right to property is sought to be lev.ed on’’).

17 The general tax lien statute appeared first in 13 Stat.

470-1 (1865) and became Rev. Stat. §3186 (1875). The lien for

daties on distilled spirits was orig.nally provided in 13 Stat. 243

(1864) and extended in 13 Stat. 471-2 (1865). This special tax

lien statute became Rey. Stat. §3251 (1875).

'S 15 Stat. 125 (1868).

15 Stat. 128 (1868), which became Rev. Stat. §3262

(1875).

20 In addition to the statutory references in notes 16-18,

supra, it may be noted that the general tax lien statute was per-

fected in 14 Stat. 107 (1866), while the special distilling tax lien

statute received legislative attention in 14 Stat. 157 (1866), and

14 Stat. 480 (1867). The general tax lien statute was amended

by 20 Stat. 331 (1879) to prevent relation back of the lien.

21 In addition to the cases cited in note 15, supra, may be

added the following hold.ngs, which deny paramountcy to the

federal tax lien as against rival liens although the latter did not fall

within the “specific, sparing, ad hoc’’ exceptions prescribed in

$3672(a): Adams v. O'Malley, 182 F. 2d 925 (8th Cir. 1950)

(county tax liens); In re Taylorcraft Aviation Corp., 168 F. 2d

808 (6th Cir. 1948) (mechanic's lien) ; United States v. Winnett,

165 F. 2d 149 (9th Cir. 1947) (contingent right of setoff);

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[ N6 ]

United States v. Sampsell, 153 F. 2d 731 (9th Cir. 1946) (cor-

porate franchise tax lien) ; American Surety Co. v. City of Louis-

ville Mun. Housing Comm'n, 63 F. Supp. 486, 487 (W. D. Ky.

1945), aff'd sub nom. Glenn v. American Surety Co., 160 F. 2d

977, 982 (6th Cir. 1947) (equitable lien of surety making good

under performance bond, against unpaid balance in hands of

obligee, for amount of expenditure plus interest) ; United States

v. Bank of Shelby, 68 F. 2d 538 (5th Cir. 1934) (banker's equit-

able lien or right of setoff); In re Fisher Plastics Corp., 89 I.

Supp. 446 (D. Mass. 1950) (lien of trustee in bankruptcy) :

United States v. 52.11 Acres of Land, 73 F. Supp. 820 (E. D. Mo.

1947) (garnishment lien) ; United States v. O'Dell, 61 F. Supp.

966, 968 (E. D. Mich. 1945), aff'd on other grounds, 160 F. 2d

304, 306-7 (6th Cir. 1947) (city, county, and state tax liens) :

New York Casualty Co. v. Zwerner, 58 F. Supp. 473 (N. D. I.

1°44) (equitable lien of surety on performance bond against funds

due principal on construction contract): In re l’an Winkle, 49

F, Supp. 711 (W. D. Ky. 1943) (equitable lien of surety on bond

against retained percentage in hands of party :n whose favor the

bond ran); Equitable Life Assur. Soc'y v. Moore, 29 F. Supp.

179 (E. D. Ill. 1939) (assignment of shares of stock to secure

loan); Exchange Nat. Bank of Tulsa v. Davy, 13 F. Supp. 22¢

(N. D. Okla. 1936) (assignment creating lien on equitable es-

tate); In re Mt. Jessup Coal Co., Ltd., 7 F. Supp. 603. 606 (M. D.

Pa. 1934) (borough tax len, rul_ng against United States having

alternative basis, however) : Winston-Salem v. Powel! Paving Co..

7 F. Supp. 424 (M. D. N. C. 1934) (involving street assessment,

municipal and county ad valorem property tax. and state income

tax liens); In re Holmes Mfg. Co., 19 F. 2d 239 (D. Conn. 1927)

(liens of receiver's certificates). In re Caswell Construction Co.,

13 F. 2d 667 (N. D. N. Y. 1926) (mechanic’s liens): The River

Queen, 8 F. 2d 426 (FE. D. Va. 1925) (maritime liens for seamen

and materialmen); In re Wyley Co., 292 Fed. 900 (N. D. Ga.

1923) (involving state taxes); Muhleman & Kayhoe, Inc. wv.

Brown, 43 Del. 207, 45 A. 2d 521 (Super.Ct. 1945) (equitable

pledge) ; Ferris v. Chic-Mint Gum Co., 14 Del. Ch. 232, 124 Atl-

377 (1924) (involving state, county, and city tax and sewer liens) :

Schmitz v. Stockman, 151 Kan. 891, 101 P. 2d 962 (1940) (Stat-

utory lien of landlord) ; Board of Sup'rs v7. Hart, 210 La. 78, 26

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So, 2d 3601 (1946) (Tien and privilege of atachment) ; Regan v-

Metropolitan Haulage Co., Inc., 127 N. J. Eq. 487, 14 A. 2d 257

(Ch. 1940) (garage keeper's Leni: Cranford Ca., Inc. v. L. Leo-

pold & Co., Inc., 189 Misc, 368, 70 N. Y. S. 2d 183 (Sup. Ct.

1947), aff'd, 273 App. Div. 754,75 N.Y. S. 2d 512 (1st Dep't

1°47), aff'd, 298 N.Y. 070, 82 N. E. 2d 580( 1948) (mechan-

c's hen): Anight v. Knight, 272 App. Div. 499, 71 N.Y. S. 2d

337 (Ist Dep't 1947), aff'd, 297 N. Y. 945, 80 N. E. 2d 344

(1948) (assignment of percentage of wages) ; United States F. &

G. Co. v. Triborough Bridge Auth., 297 N. Y. 31, 74 N. E. 2d

226 (1947) (equitable len of sureiy on performance bond against

money due contractor in default); First Nat. Bank v. Southland

Production Co., 189 Okla. 9, 17-18, 112 P. 2d 1087, 1095-6 (1941)

(State tax lien securing unascettained amount); United States v.

Vates, 204.5. W. 2d 309, 405 (Tex. Civ. App. 1947) (attachment

lien and liens for material, equipment, and labor furnished public

contractor, “perfected” by filing notice with office of public

agency involved): State v7. H’ynne, 334 Tex. 455, 133 S. W. 2d

931 ( Tex. 1939) (state tax liens).

In the following cases the federal tax len prevailed over a

nontederal lien because the federal lien was prior in time: Cobb

v. United States, 172 F. 2d 277, 278-9 (D.C. Cir. 1949); In re

Northwest Wood Products Co., 168 V. 2d 639 (7th Cir. 1948) :

Cnited States 7. Greenville, 118 F. 2d 963, 966 (4th Cir. 1941)

(per C. J. Parker): In re F. MacKinnon Mfg. Co., 24 F. 2d 156

(7th Cir, 1928); United States v. Certain Lands, 71 F. Supp. 76

(E. D. Mo. 1°46); United States v. Record Pub. Co., 60 F. Supp.

194 (N. D. Cal 1945): Gerson, Beesley & Hampton, Inc., v. Shu-

hert Theatre Corp., 7 F. Supp. 399, 400 (S. D. N. Y. 1934);

Republic Nat. Life Ins. Co. v. Hedstrom, 346 Il. App. 555, 105

N. E. 2d 782 (1952): Littlestown Nat. Bank v. Penn Tile Wks.

Co., 352 Pa. 238, 42 A. 2d 606 (1945); cf. United States v. The

Pomare, 92 F. Supp. 185, 188 (D. Hawaii 1950).

The rule of “first in time, first in right” has been applied with

respect to the federal estate tax lien arising at the tme of the de-

cedent’s death (Int. Rev. Code §&827(a). Paul v. United States,

127 Il. 2d 64, 66 (6th Cir. 1942), aff'd sub.nom. Det. Bk v. United

States, 317 U.S. 329, and Michigan «. United States, 317 U.S.

338 (1943): United States v. Security-First Nat. Bank, 30 F.

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IL N8)

Sapp. 113 (S. D. Cal. 1939), appecl dismissed, 113 F. 24 491

(9h Cir. 1940): In re Deckers Estate, 355 Pa. 331, 49 A. 2d 714

(1946), cert. denied sub nom. Decker v. Kann, 331 CU. S. 807

(1947).

The rale of “first in time, first in right’ is no more than an

application of the first rule of property: Qui prior est tempore

fotior est jure. Broom, Leg.l Maxims 227 (10th ed., Kersley,

1939). The aniversality of the rule has often been recognized

by this Court. Rankin & Schatzell v Scott, 12 Wheat 177, 179

(U.S. 1827): Howard 7. Railzw.y Co., 101 U. S. 837, 845 (1879).

#2 A state real property tax lien aris.ng under a statute very

much like Conn. Gen, Stat. $1853 (1949) was enforced against

the United States in United States v. Alabama, 313 U. S. 274

(1941). The City’s liens were “perfected” as agaist the United

States for the purposes of §67b of the Bankruptcy Act. 4 Collie

Bankruptcy pars. 67.24, 67.26 (14th ed. 1°42). The Government's

statement at pp. 26-7 of its Brief that the decision in Merchant's

Bank & T. Co. v. Pettison, 112 Conn. 652, 153 Atl. 789 (1931),

shows, “how far from “perfected” the City’s lens are” and that they

must yield in precedence to the policy of another statute, misses

completely what was there decided. The Connecticut statute in-

volved in the case purposed to reou‘te exhaustion of his security by

any judgment creditor holding a mortgage which was a “first

charge.” The judgment cr-ditor-mortgagee in the case sought to

avoid applicat.on of the statute by argu'ng that its mortgage was

not a first charge in view of the priority of Hartford's tax lien. The

court did not deny that the tax I:2n was first in precedence or was

not perfected, but it did reject the mortgagee’s construction which

would have gelded the statute. The legislature obviously intended

to deal with a mortgage that was a first mortgage, even though

not prior to the city’s tax I’en.

3 Compare, ¢.g., Brent v. Bank of Washington, 10 Pet. 596

(1836).

*# See H. R. Rep. No. 1018, 62d Cong., 2d Sess. (1912):

Sen. Rep. No. 1315, 62d Cong., 3d Sess. (1913): 49 Cong. Rec.

1802 (1913): H. R. Rep. No. 1273. 68th Cong., 2d Sess. (1925) :

H.R. Rep. No. 855, 75th Cong., Ist Sess. 25-6 (1939) : Sen. Rep.

No. 648, 76th Cong., Ist Sess. 10 (1939) : 84th Cong. Rec. 7481-2

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(1939); H. R. Rep. No. 2333, 77th Cong., 2d Sess. 173 (1942) ;

Sen. Rep. No. 1631, 77th Cong., 2d Sess. 248 (1942). See also

Cong. Globe, 37th Cong., 2d Sess. 2254-58, 2351-8, 2454-5 (1862) :

22 A. B. A. Rep. 53-8 (1899) ; 25 A. B. A. Rep. 496 (1902) ; 37

A. B. A. Rep. 41, 570 (1912) ; 38 A. B. A. Rep. 618 (1913).

25 City of Richmond v. Bird, 249 U. S. 174 (1919) : 3 Col-

lier Bankruptcy par. 64.403 (14th ed. 1941).

*5 —H. R. Rep. No. 1018, 62d Cong., 2d Sess. 1 (1912).

** H.R. Rep. No. 1018, 62d Cong., 2d Sess. 2 (1912).